Asian Infrastructure Investment Bank

Water Strategy

Water Sector Analysis

October 2019

Acronyms

ADB Asian Development Bank AfDB African Development Bank AFD French Development Agency AIIB Asian Infrastructure Investment Bank CDM Clean Development Mechanism EIB European Investment Bank EPC Engineering Procurement Construction GCF Green Climate Fund IaDB Islamic Development Bank IFC International Finance Corporation IFI International Financial Institution IWMI International Water Management Institute MDB Multilateral Development Bank MIGA Multilateral Investment Guarantee Agency NDC Nationally Determined Contributions PPP Public Private Partnership SDG Sustainable Development Goal USAID United States Agency for International Development WB World Bank

Contents

1. Regional Context and Drivers ..............................................................................................4

2. Key Water Sector Issues in Asia ..........................................................................................7

2.1. Water Supply and Sanitation ...................................................................................11

2.1.1. Trends in water supply and sanitation ..................................................................11

2.1.2. Performance of water service providers ...............................................................13

2.1.3. Trends in Public-Private Partnerships in Water Supply and Sanitation .................17

2.2. Irrigation and Drainage ............................................................................................17

2.3. Energy .......................................................................................................................20

2.4. Water-Related Disasters: Floods and Droughts .....................................................20

2.5. Freshwater Ecosystems ...........................................................................................23

2.6. Navigation .................................................................................................................23

3. Cross-Cutting Issues ..........................................................................................................27

3.1. Governance ...............................................................................................................27

3.2 Nexus ........................................................................................................................28

3.3 Gender and Inequality ..............................................................................................28

3.4 Resilience..................................................................................................................29

4 Water Infrastructure ...........................................................................................................31

4.1 Economic and Financial Characteristics of Water Infrastructure ..............................34

5 Water Infrastructure Investment in Asia .............................................................................36

5.1 Investment Trends ....................................................................................................36

5.2 Investment Needs .....................................................................................................39

5.2.1 Overview of infrastructure investment need and gap ............................................39

5.2.2 Infrastructure investment needs scenarios by sub-region and country .................42

5.3 Financing Strategies and Opportunities .................................................................44

5.3.1 Overview of Water Sector Financing ....................................................................44

5.3.2 Financing Challenges ..........................................................................................45

6. Water Infrastructure for Development: Lessons Learned ...................................................49

6.1 Strengthen Institutions and Policies ............................................................................49

6.2 Promote Financial Sustainability .................................................................................50

6.3 Understand Risk-Reward Characteristics ...................................................................50

6.4 Improve Long-term Capital Planning ...........................................................................52

6.5 Consider Public-Private Partnerships .........................................................................52

6.6 Engage Stakeholders and Beneficiaries ......................................................................53

6.7 Develop More Incentives ..............................................................................................53

Appendix I: Cost of water infrastructure investment by country .................................................55

4

1. Regional Context and Drivers

Water management and related infrastructure have been crucial for economic growth, food

security, and trade throughout Asia’s history. Harnessing water’s productive potential and

mitigating its destructive force remain a key priority to achieve better social and economic

outcomes in Asia, and beyond. Water investments take place in a complex and dynamic socio-

economic and environmental context, characterized by accelerating drivers including population

growth, increasing urbanization, rampant ecological and environmental degradation, and climate

change.

Sixty percent of the world’s population lives in Asia (4.5 billion)1. This number is set to

increase, with UN projections suggesting that Asia’s population might grow by another 750 million

people over the next 30 years, reaching more than 5 billion by 20502. Asia’s share of urban

population, currently at 50%3 is expected to reach about 66% by 20504. Two countries in Asia

(China and India) alone are projected to add 416 million and 255 million urban dwellers by 2050,

respectively 5. As populations increase and become urbanized, water, energy and food demands

grow and governments struggle to keep up. Access to piped water supply, for example, is

declining in many urban areas6. In addition, food consumption tends to shift towards animal-rich

diets, increasing demand for water-intensive food commodities7.

Asia has achieved remarkable economic success over the past five decades; however, this

has been accompanied by rapid environmental degradation. Degradation of ecosystems and

its related services are reported to be significant and growing across the region8. Eight of the top

ten most plastic-polluted rivers in the world are in Asia 9 ; and the continent’s freshwater

ecosystems are in worse condition than forest, grassland and coastal ecosystems10. Scientific

estimates show that about 40% of Asia’s wetlands have disappeared since 197011.

Asia’s climate change induced water challenges are as diverse as its physical geography.

Asia’s mountain systems are a global warming hotspot. Even if global warming is kept to 1.5 °C

(the limit set in the Paris Agreement), warming in the Hindu Kush Himalaya mountains will likely

be at least 0.3 °C higher, and in the northwest Himalaya and Karakoram mountains at least 0.7

°C higher 12 . This warming could trigger increased glacial melt, and less predictable water

availability impacting the water, energy and food security of more than 1.9 billion people living in

the 10 river basins originating in these mountains13. Beyond mountain systems, Asia’s low-lying

coastal areas also face threats from sea-level rise and increased frequency of coastal storms.

Under a business-as-usual scenario, sea level may rise by 1.4 meters by the end of the century14.

While countries with very long coastlines, and low-lying deltas (e.g. China, Vietnam, Bangladesh)

are projected to be most affected in absolute terms, small-island states will bear the highest

relative impacts from sea-level rise and increasing frequency of tropical cyclones15. Cities are

particularly vulnerable to flooding, with a projected 410 million urban Asians at risk of coastal

flooding and 350 million at risk of inland flooding by 202516. Finally, Asia’s tropical regions might

experience more variable and intense seasonal precipitation events, including changes to the

pattern of the monsoons17.

5

Asia is already experiencing the negative impacts of increased hydrological variability18.

Intensification of the hydrological cycle, with attendant increase in the frequency and intensity of

extreme events, is expected to accompany climate change. In Asia, the number of record-

breaking rainfall events has already increased over the period 1981-2010 across the continent,

doubling in Southeast Asia19. This trend is expected to continue into the future20. More extreme

precipitation events have implications for the risk of flooding, in particular for cities and Asia’s dry

regions which are not well equipped to deal with these events21. Asia is also greatly impacted by

drought, with severe impacts on economies and population. In China alone, average direct

drought losses have been estimated to be 0.15% of GDP per year according to the China Flood

and Drought Disaster Bulletin. By the end of the century, droughts are projected to happen 5 to

10 times more frequently in West and Southern Asia22. Given Asia’s projected economic and

population growth, more assets and people will be exposed to water extremes unless mitigating

action is taken.

Against this backdrop, investments in water infrastructure become crucial for Asia to be

able to reach the goals expressed in global, regional and national policy agendas. At the

global level, the Sustainable Development Goals (SDGs) and the Sendai Framework for Disaster

Risk Reduction provide a framework for investments in the water sector. At the national level,

priorities expressed by AIIB client countries include investments in water-related disaster risk

reduction23, reducing water pollution24, increasing access to water supply and sanitation and

expanding irrigation for food security. Investing also in multipurpose water infrastructure for flood

control and hydropower development, amongst other uses, is seen as one solution to address

the challenges described.

Water is a shared resource, so investments in water infrastructure are also crucial to

promote cross-border benefits and connectivity. Asia’s international rivers carry a large share

of the region’s water across national boundaries, and this proportion is even higher if

transboundary aquifers are considered. Transboundary freshwater systems create linkages and

interdependencies between countries. Across Asia, major transboundary basins where

coordinated development and management is recommended include the Mekong, Ganges-

Brahmaputra-Meghna, Indus, Kabul, and Syr Darya and Amu Darya River basins. Global

experience shows that cooperation among countries in the development of transboundary basins

can yield greater benefits than would be achieved through unilateral development25. Sharing

water’s benefits and information across national borders remains a challenge in many parts of

Asia26.

Notes and References

1 UN DESA. 2017. World population prospects, the 2017 Revision, Key findings. New York United Nations Department of Economic & Social Affairs. 2 ibid. 3 UN DESA. 2018. World Urbanization Prospects: the 2018 Revision. Key facts. New York United Nations Department of Economic & Social Affairs.

6

4 UN DESA. 2018. World Urbanization Prospects: the 2018 Revision. Dataset on the annual percentage of population at mid-year residing in urban areas. New York United Nations Department of Economic & Social Affairs. 5 UN DESA. 2018. World Urbanization Prospects: the 2018 Revision. Key facts. New York United Nations Department of Economic

& Social Affairs. 6 This is estimated using data from WHO and UNICEF Joint Monitoring Programme (https://washdata.org/data). The share of the world’s urban population with piped water supply decreased from 85.2% in 2000 to 82.9 in 2015. 7 Godfray, H.C.J., Aveyard, P., Garnett, T., Hall, J.W., Key, T.J., Lorimer, J., Pierrehumbert, R.T., Scarborough, P., Springmann, M. and Jebb, S.A., 2018. Meat consumption, health, and the environment. Science, 361(6399), p.eaam5324. 8 IPBES (2018): The IPBES regional assessment report on biodiversity and ecosystem services for Asia and the Pacific. Karki, M.,

Senaratna Sellamuttu, S., Okayasu, S., and Suzuki, W. (eds). Secretariat of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, Bonn, Germany. 612 pages. 9 Schmidt, C., Krauth, T. and Wagner, S., 2017. Export of plastic debris by rivers into the sea. Environmental science & technology,

51(21), pp.12246-12253. 10 IPBES (2018): The IPBES regional assessment report on biodiversity and ecosystem services for Asia and the Pacific. Karki, M., Senaratna Sellamuttu, S., Okayasu, S., and Suzuki, W. (eds). Secretariat of the Intergovernmental Science-Policy Platform on

Biodiversity and Ecosystem Services, Bonn, Germany. 612 pages. 11 Dixon, M.J.R., Loh, J., Davidson, N.C., Beltrame, C., Freeman, R. and Walpole, M., 2016. Tracking global change in ecosystem area: the Wetland Extent Trends index. Biological Conservation, 193, pp.27-35. 12 Krishnan R. et al. (2019) Unravelling Climate Change in the Hindu Kush Himalaya: Rapid Warming in the Mountains and Increasing Extremes. In: Wester P., Mishra A., Mukherji A., Shrestha A. (eds) The Hindu Kush Himalaya Assessment. Springer, Cham 13 Sharma E. et al. (2019) Introduction to the Hindu Kush Himalaya Assessment. In: Wester P., Mishra A., Mukherji A., Shrestha A. (eds) The Hindu Kush Himalaya Assessment. Springer, Cham 14 Asian Development Bank. 2017. A region at risk: the human dimensions of climate change in Asia and the Pacific. Asian

Development Bank: Manila. 15 ibid 16 Asian Development Bank. 2012. Green Urbanization in Asia Key Indicators for Asia and the Pacific 2012. Special Chapter.

Manila: Asian Development Bank. 17 Asian Development Bank. 2017 .A region at risk: the human dimensions of climate change in Asia and the Pacific. Manila: Asian Development Bank. 18 Hirji, RF; Nicol, A; Davis, RM. 2018. South Asia - Climate change risks in water management: climate risks and solutions - adaptation frameworks for water resources planning, development, and management in South Asia (English). Washington, D.C.: World Bank Group 19 Lehmann, J., Coumou, D., Frieler, K. (2015): Increased record-breaking precipitation events under global warming. Climatic Change 20 Asian Development Bank (2017) A region at risk: the human dimensions of climate change in Asia and the Pacific. Manila: Asian Development Bank. 21 Donat, M.G., Lowry, A.L., Alexander, L.V., O’Gorman, P.A. and Maher, N., 2016. More extreme precipitation in the world’s dry and wet regions. Nature Climate Change, 6(5), p.508. 22 Naumann, G., Alfieri, L., Wyser, K., Mentaschi, L., Betts, R.A., Carrao, H., Spinoni, J., Vogt, J. and Feyen, L., 2018. Global

changes in drought conditions under different levels of warming. Geophysical Research Letters, 45(7), pp.3285-3296. 23 Global Water Partnership. 2019. Consulting meeting on HELP-GWP consultation on draft Principles on investment and financing for water-related Disaster Risk Reduction. Hanoi, Viet Nam. Available from:

https://www.gwp.org/globalassets/global/gwp-sea_files/report-help-gwpsea-consultation-meeting---vietnam-march19_final.pdf 24 UNESCAP. 2019. Workshop on strengthening national policies for improving water use and limit water pollution in key industrial sectors in Asia. United Nations Survey responses. Economic Commission for Asia and the Pacific. Available from:

https://www.unescap.org/sites/default/files/11.%20Survey%20Response%20PPT.pdf 25 World Bank. 2018. Promoting development in shared river basins. Tools for enhancing transboundary basin management. Washington, DC: World Bank. 26 Salman, S.M. and Uprety, K., 2018. Shared Watercourses and Water Security in South Asia: Challenges of Negotiating and Enforcing Treaties. Brill Research Perspectives in International Water Law, 3(3), pp.1-100.

7

2. Key Water Sector Issues in Asia

The water sector poses significant constraints and opportunities for AIIB clients in their

pursuit for improved economic, environmental and social outcomes. When water’s

destructive potential is not mitigated, economic impacts are significant: at least 360 billion USD

are lost annually across Asia due to inadequate water supply and sanitation, water scarcity and

flood damage1. The largest economic losses in absolute terms are experienced in Eastern Asia

and Southern Asia (Figure 2.1). Asia’s population also feels the burden of unmitigated water risks,

with at least half a billion Asians facing water shortages, and more than a billion not having access

to adequate drinking water supply and sanitation services. The greatest numbers of people

exposed to water-related challenges are found in India and China (Table 2.1). When exposure to

these water risks is considered in relative terms countries such as Myanmar, Pakistan, Papua

New Guinea, and Vietnam have the highest proportions of population at risk (Table 2.1).

Figure 2.1. Annual economic losses from water scarcity, flooding and inadequate water supply

and sanitation, by UN sub-regions in Asia2.

Source: IWMI with data from Sadoff et al. 2015. Securing water, sustaining growth: Report of the GWP/OECD Task Force on Water Security

0 50 100 150 200

Oceania

Central Asia

Western Asia

South-easternAsia

Southern Asia

Eastern Asia

Annual economic losses (bn USD)

Water scarcity

Flooding (property damage alone)

Inadequate water supply andsanitation

8

Table 2.1. Top ten Asian countries for total population (left) and proportion of population (right) at

risk from water shortages, flooding and inadequate water supply and sanitation.

Source: IWMI with data from Sadoff et al. 2015. Securing water, sustaining growth: Report of the GWP/OECD Task Force on Water Security.

Where water is reliably available, economic opportunities are enhanced. Where water is

scarce and unpredictable, economic and human development are often hampered.

Economic output measured as GDP is sensitive to freshwater variability, especially where

agriculture accounts for a large share of the economy3. Many Asian countries also face the double

challenge of both high scarcity (threshold defined where water withdrawals exceed 40% of the

available water resources4) and high variability (annual freshwater availability varies by more than

75 percent from long-term averages) (Figure 2.2). This impacts agricultural productivity. Farmers

will often respond by expanding cropland at the expense of natural ecosystems 5 . In some

countries, water scarcity and variability also affect power generation from hydropower. With

growing demands and climate change affecting supplies, investments to manage water variability

and scarcity will become even more important.

9

Figure 2.2. Many Asian countries face the double challenge of water scarcity and freshwater

variability.

Sources: World Resources Institute for freshwater variability and FAO AQUASTAT database for water scarcity. Freshwater variability is calculated as

the standard deviation of annual total freshwater divided by the mean of total available freshwater. Water scarcity is calculated as the ratio of total water

withdrawals to renewable freshwater resources (typically referred to as ‘water stress’ in the hydrological sciences). Country classifications by income

levels are based on the World Bank’s Gross National Income per capita classification. Country abbreviations are ISO codes.

Many Asian countries are also not making the most of their scarce water resources. The

economic value added per water withdrawn (i.e. water productivity) is low in many Asian countries

facing water scarcity (bottom right corner in Figure 2.3). This low water productivity is often

accompanied by declining water quality. In fact, some of the most polluted waters from nutrient

runoff from fertilizers are found in water scarce regions, notably Central Asia, China and South

Asia6. This suggests that current agricultural water management practices need to be revised in

order to enhance water productivity and reduce pollution. Under conditions of scarcity, increasing

the productivity of water and ensuring its quality becomes essential to ensure that maximum

benefits are obtained with less water and sustainability for future generations and ecosystems.

10

Figure 2.3. Some Asian countries are not making the most of scarce freshwater resources.

Sources: World Bank for water productivity and FAO AQUASTAT database for water scarcity. Water productivity is calculated as GDP in constant prices

divided by total water withdrawals. Water scarcity is calculated as the ratio of total water withdrawals to renewable freshwater resources (typically referred

to as ‘water stress’ in the hydrological sciences). Country classifications by income levels are based on the World Bank’s Gross National Income per

capita classification. Country abbreviations are ISO codes.

AIIB client countries face two overriding challenges in their efforts to harness water-

related opportunities and mitigate water-related risks. First, all countries face the challenge

of developing and maintaining water infrastructure. Circumstances and priorities differ, but the

need to rehabilitate existing infrastructure assets and develop new ones is high and increasing

across Asia7. Second, AIIB client countries face the challenge of developing capacity, regulations,

laws and institutional arrangements needed to manage water resources and ensure that water

infrastructure is sustainable (see Section 3). The remaining part of this section briefly reviews

each water sub-sector in Asia.

11

2.1. Water Supply and Sanitation

2.1.1. Trends in water supply and sanitation

Lack of access to drinking water supply and sanitation services remains a key issue and

area of infrastructure need. At least 370 million Asians still lack access to basic drinking water

services8. Of these 370 million, 57% are in south Asia and 19% in south-eastern Asia. Oceania

faces the biggest gap in access to drinking water supply as a share of its population, with more

than 50% of its population currently lacking basic access to drinking water (Figure 2.4, top panel)9.

Sanitation also remains a key development challenge throughout Asia, with at least 1.49 billion

Asians lacking access to basic sanitation services10. Of these, 63% live in South Asia and 24% in

Eastern Asia. Oceania and South Asia have the lowest access to sanitation services as a share

of their population (Figure 2.4, bottom panel)11. These are issues in both rural and urban areas.

These statistics communicate the magnitude of the overall issue but fail to reveal some of the

additional challenges faced by vulnerable groups, notably for women and girls.

Figure 2.4. Drinking water supply (top) and sanitation (bottom) coverage by UN sub-region, share

of population in 2015.

0%

20%

40%

60%

80%

100%

Oceania Caucasusand Central

Asia

WesternAsia

EasternAsia

South-eastern Asia

SouthernAsia

Asia

Dri

nkin

g w

ate

r serv

ices c

overa

ge (

% p

opula

tion)

At least basic Limited service Surface water Unimproved

12

Source: IWMI with data from WHO/UNICEF Joint Monitoring Program for Water Supply, Sanitation and Hygiene (JMP). Available from:

https://washdata.org/. The service groups shown in these figures follow the WHO/UNICEF Joint Monitoring Program ladder classification. Drinking water

services refers to the accessibility, availability and quality of the main source used by households for drinking, cooking, personal hygiene and other

domestic uses. Safely managed: Drinking water from an improved water source which is located on premises, available when needed and free from fecal

and priority chemical contamination. Basic: Drinking water from an improved source, provided collection time is not more than 30 minutes for a roundtrip

including queuing. Limited: Drinking water from an improved source for which collection time exceeds 30 minutes for a roundtrip including queuing.

Unimproved: Drinking water from an unprotected dug well or unprotected spring. Surface water: Drinking water directly from a river, dam, lake, pond,

stream, canal or irrigation canal. Sanitation services refer to the management of excreta from the facilities used by individuals, through emptying and

transport of excreta for treatment and eventual discharge or reuse. Safely managed: Use of improved facilities which are not shared with other households

and where excreta are safely disposed in situ or transported and treated off-site. Basic: Use of improved facilities which are not shared with other

households. Limited: Use of improved facilities shared between two or more households. Unimproved: Use of pit latrines without a slab or platform,

hanging latrines or bucket latrines. Open defecation: Disposal of human feces in fields, forests, bushes, open bodies of water, beaches and other open

spaces or with solid waste.

Absent and inadequate approaches to safely managed sanitation, including wastewater

treatment capacity, are a key sector issue. About 80% of the region’s wastewater is discharged

to water bodies without treatment, with consequences for public health, water quality and

ecosystems.12 In many AIIB client countries, including India, Pakistan, Philippines, and Vietnam,

this share is even higher, with more than 90% of the wastewater generated receiving no treatment

before being discharged into a water body.13 At the same time, poor sanitation practices lead to

unsafe disposal of human waste. Expanding on-site and off-site sanitation services, including

expanding wastewater treatment capacity, and ensuring the efficient and sustainable operation

and maintenance of such facilities is key to providing safely managed sanitation services and

avoiding public health risks in Asia’s growing cities.

Rapid urbanization has meant that service providers have struggled to keep pace with

urban demands. For example, in South Asia access to water supply has reduced from 71

percent in 2000 to 66 percent in 201514. Declines in piped access to water mean that off-grid

customers are increasing, typically concentrated in poorer segments of society. An analysis of 75

0%

20%

40%

60%

80%

100%

South Asia Oceania South-eastAsia

WesternAsia

EasternAsia

Caucasusand Central

Asia

Asia

Sanitation s

erv

ices c

overa

ge

(% p

opula

tion)

At least basic Limited service Unimproved Open defecation

13

developing countries in Asia, Africa and Latin America showed that more than 68 percent of these

customers come from the bottom two income quintiles. Within these regions, many countries have

more than 80 percent of such off-grid users from the poor and poorest categories, for example in,

Vietnam, Thailand, Cambodia, and Bangladesh.

The water supply sector is faced with increasing demands and limited opportunities to

expand supply. Water demands will increase in Asia, with a 65% increase in industrial water

use, 30% increase in domestic use, and 5% increase in agriculture use projected by 203015. To

respond to growing demands for drinking water, AIIB client countries might increasingly consider

‘unconventional’ water sources such as desalination and wastewater reuse, as well as more

integrated urban water management solutions, to mobilize additional supplies and protect existing

ones. Asia already accounts for a significant share of global desalination capacity, and this share

is likely to increase16. In Western Asia, Saudi Arabia, the United Arab Emirates and Kuwait

account for 15.5%, 10.1% and 3.7% of the world’s desalination capacity respectively, while

Eastern Asia accounts for about 18.4% of global desalinated water 17 . Desalination is not a

panacea to address water challenges; however, it will continue to be an option (albeit an

expensive one) for urban water infrastructure investment alongside a range of complementary

interventions, including leakage reduction, wastewater reuse, and demand management, to meet

increasing demands and improve resilience to climate change.

A range of technical solutions – both centralized and decentralized - must be promoted to

ensure safely managed drinking water and sanitation for all18. Conventional approaches

often involve investment-intensive, usually underground, pipe networks that provide single-quality

drinking water and evacuate stormwater and wastewater. These systems are often paired with

reservoirs and long-distance water conveyance systems which compensate for inadequate local

water resources19. Alternative approaches that provide locally adapted and resource-efficient

solutions are emerging and likely to become more prominent over the coming decades20. These

solutions include distributed or on-site treatment of wastewater, source separation of human

waste and nature-based infrastructure for stormwater drainage (see section 2.5). For these

decentralized solutions to work, innovations in organizational and regulatory models are needed,

as demonstrated, for instance, by Asia’s growing experiences with fecal sludge management21.

The Citywide Inclusive Sanitation (CWIS) comprehensive approach also shows promise in

integrating a range of technical solutions with the financial, institutional, regulatory and social

dimensions22.

2.1.2. Performance of water service providers

Asian water service providers suffer from technical inefficiency, low levels of service, weak

governance and poor financial performance. This arises from a complex mix of limited

incentives, vested interests that benefit from the low-level status quo, low and politicized tariffs,

and weak capacity. In general, such utilities do not possess key characteristics of well-run

companies including: (1) financial and managerial autonomy; (2) internal and external

accountability; (3) market orientation that would deliver efficiencies and (4) customer orientation.

There are exceptions such as Phonm Penh in Cambodia, Manila and Mynilad Water in Manila,

14

and Haiphong water company in Vietnam amongst others. They are, unfortunately, the exception

rather than the rule showcasing the “art of the possible” in the region.

A key indicator of technical performance is levels of non-revenue water, which are high

across many Asian countries. Levels of non-revenue water across many Asian sub-regions are

higher than global averages both in absolute (cubic meters per day) and relative (volume per

capita) terms (Figure 2.5). Non-revenue water is highest in countries in South Asia (India,

Pakistan, Bangladesh) and Southeast Asia (Philippines, Malaysia, Indonesia among others), as

shown in Figure 2.6. Although costing non-revenue water is notoriously difficult, some estimate

revenue losses on the order of USD 12 billion per year across Asia23.

Figure 2.5. Non-revenue water (NRW) for selected world regions.

Source: IWMI with data from Liemberg, R., Wyatt, A. 2018. Quantifying the global non-revenue water problem. Presented at the Water Loss 2018

conference in Cape Town, South Africa. Available from: http://www.waterloss2018.com/wp-content/uploads/2018/06/08/A24.pdf. Note: both quantities

are shown on the same axis; however, their units are different as shown in the legend.

0 20 40 60 80 100 120 140 160

World average

Central Asia

Sub-Saharan Africa

Southeast Asia

Europe

East Asia

South Asia

Latin America and Caribbean

Non-revenue water

NRW (million cubic metres per day)

NRW (litres per capita per day)

15

Figure 2.6. Nonrevenue water in selected economies in the Asia and Pacific.

Source: Asian Development Bank (2016) Asian Water Development Outlook 2016: Strengthening Water Security in Asia and the Pacific. Manila: Asian

Development Bank.

There are many opportunities to improve efficiency. As a result, this will improve service to

customers (e.g. reducing leakage increases both availability of supply and pressure in the

network), move providers towards greater financial autonomy, and ultimately improve

creditworthiness. Most utilities are far from being creditworthy and are thus unable to borrow

domestically from the market. A study looking at the impact of various efficiency improvements

(Figure 2.7), shows that 73% of Asian utilities can be made financially viable (i.e., that recover

more than 120% of operating costs) by addressing collections, non-labor costs (including energy

efficiency) and leakage. 120% was chosen as a level of financial performance that would provide

funds for possible debt service. If this greater operational efficiency and cash surplus can be

maintained through good policies, governance and incentives, then Asian utilities could mobilize

private finance.

16

Figure 2.7. Impact of four efficiency improvement steps to reach financial viability (i.e. capable of

recovering 120% of O&M costs)

Source: World Bank’s International Benchmarking Network for Water and Sanitation Utilities (IBNET). NRW: Non-revenue water. Note: Because of the

World Bank regional classification used, estimates include North African and eastern European utilities.

Improving performance of public utilities takes time – up to 10 years to fully embed

improved practices and performance improvements. There are many tools now available to

support the evaluation of the key challenges facing a utility and guidance on possible solutions.

The World Bank’s Utility Turnaround Framework24 is an example. This could provide a foundation

for standardized evaluation and project designs by AIIB. There are also opportunities to review

the institutional structure of utilities to facilitate progress towards the key desired characteristics

mentioned above (e.g. financial and managerial autonomy, accountability, market and customer

orientation). This might include at a minimum the ring fencing of accounts or moving towards

some form of corporatization of the utility. The introduction of regulatory mechanisms is also

possible, but care is needed to ensure that such mechanisms are appropriate for the challenges

being faced, the level of regulatory capacity in the country and, critically, the quality and availability

of regulatory data in the utilities.

With respect to financing, utilities and potential lenders do not fully understand each other.

Utility managers are used to relying on public funding. Once this funding is used, then any further

planned activities are put on hold until the next tranche of public finance is provided. Utilities also

17

may not have incentives to invest in efficiency activities – for example, if the state pays for

electricity consumption by the utility then there is little incentive for a utility manager to use scarce

resources to finance new energy efficient pumps and motors. At the same time domestic banks

are often wary of the sector believing it to be too politicized. As a result, opportunities to stimulate

small scale borrowing for high pay back investments are not being exploited.

2.1.3. Trends in Public-Private Partnerships in Water Supply and Sanitation

In the late 1990’s, the private sector was viewed as a solution to addressing the endemic

performance challenges of public service provision. The approach adopted was generally to

seek delegated management of the utility to the private sector to the maximum extent possible –

with concessions being the deepest form of privatization typically observed. The client bought

management expertise from the private sector through a contracting arrangement that facilitated

the introduction of the key characteristics noted earlier. This was expected to deliver results

quickly.

The approach faced many technical challenges. The lack of understanding of the condition

and performance of the pipe networks caused delays and led to renegotiation of the contracts

with upwards pressure on tariffs. As a result, the high expectations surrounding the process

weren’t met and political economy challenges became apparent. This led to many failures, some

of them high profile.

In recent times the focus has been more on the use of PPPs to deliver improved technical

and commercial performance, using public rather than private funds for investment.

Greater consideration is also now given to more focused service contracts – particularly those

that are performance based such as design-build-operate (DBOs) and performance-based

leakage contracts. In the short term, investments in activities that improve collection efficiency,

energy efficiency and reductions in leakage are appealing as they have a clear focus, do not

involve delegation of management of the whole system, and result in better service and financial

performance of the utility.

2.2. Irrigation and Drainage

Asia’s irrigation and drainage sector is under pressure to modernize and increase

production. Irrigation already plays a key role in Asia’s agricultural economy, with recent

estimates suggesting that about 2.6 million km2 of agricultural land in Asia is irrigated (about 70%

of the world’s total irrigated land)25. The largest share of irrigated land is found in South Asia (India

and Pakistan) and Eastern Asia (China). In the future, irrigated lands must produce more

quantities of food and fiber to respond to the needs and changing consumption habits of Asia’s

growing population26. This growth will partly come from expansion of the area under irrigation.

Existing projections suggest that the area under irrigation is set to expand by an additional 57

million hectares by 2050, a 20% expansion from 2010 levels27 (Figure 2.8). However, irrigation

expansion alone will not be enough. Most of the gains from expanding irrigation area will only be

18

realized if it is accompanied by investments to modernize systems and increase water use

efficiency28.

Figure 2.8. Harvested area projections by Asian sub-region (percentage change from 2010).

Source: Rosegrant et al., 2017. Quantitative foresight modeling to inform the CGIAR research portfolio. Intl Food Policy Res Inst.

Increased agricultural production must also come from getting more from existing

irrigation infrastructure assets. This means that investments in irrigation and drainage

infrastructure will have to focus on modernization (both technical and institutional), basin wide

efficiency, and improvements to drainage. In particular, underinvestment in drainage has meant

that large swaths of agricultural land in Asia, particularly in the semi-arid regions of Central Asia29

and South Asia30, have become unproductive or have low productivity as a result of waterlogging

and salinity. Modelling suggests that increased investments in water use efficiency will bring the

most productivity gains31.

Underperformance of existing publicly owned surface irrigation schemes is a key sector

challenge32. Inadequate management, operation and maintenance of irrigation systems initiates

a vicious cycle of performance decline (much like in the urban utility sector): poor irrigation service

reduces farmers’ willingness to pay and hence reduces collected fees. Reduced revenues for the

public irrigation agency mean that they lack the financial resources to cover O&M, service debt,

and take on new capital investments. This leads to a further deterioration in the performance of

the system. Securing adequate funds is a necessary but not sufficient condition to improve sector

performance and break this vicious cycle. Institutional and policy reforms are needed, including

decentralizing management of lower levels of the irrigation system (e.g. tertiary level canals) to

community organized user groups (i.e. irrigation management transfer). Water users’

associations (WUAs), for example, can contribute to improving the performance of existing and

planned irrigation and drainage infrastructure throughout Asia, alongside other elements such as

better use of inputs (e.g., seeds, fertilizers), improved storage and access to markets. WUAs have

0%

5%

10%

15%

20%

25%

30%

35%

East Asia andPacific

South Asia Former SovietyUnion

Western Asia andNorth Africa

Irrigation

Change in h

arv

este

d a

rea f

rom

2010

2030 2050

19

been promoted, in part, to enhance the collection of local funding for O&M. Nonetheless, ADB’s

Evaluation Study of Irrigation and Drainage (2009) portrays a very mixed experience with WUAs

in 18 projects across Asia, where irrigation management transfer was often ineffective at raising

higher funds for O&M33. Irrigation departments also often underperform throughout Asia32 and

face significant financial and human resource management challenges. Modernizing irrigation

departments to be more service oriented is a key step towards improvement32.

Uncontrolled expansion of groundwater irrigation is not sustainable for many Asian

countries. Cheap and subsidized electricity has made groundwater pumping a feasible irrigation

option for millions of farmers across Asia34. Although this has had positive implications for food

security and poverty reduction, it has also led to widespread groundwater depletion (Figure 2.9 –

see China and India). Five Asian countries account for more than 50% of global groundwater

withdrawals. The Indian subcontinent has some of the highest levels of groundwater depletion in

the world, with at least half of the subcontinent’s groundwater being extracted faster than it is

being replenished35. Responding to Asia’s groundwater crisis is key to ensure the sustainability

of irrigation and agricultural production in the region. This will include, among others, reducing

perverse subsidies for groundwater pumping and developing institutional incentives for

sustainable and conjunctive use of surface and groundwater resources.

Figure 2.9. Groundwater storage declines in several of the world’s aquifers (mm equivalent water

height)

Source: Derived from the NASA GRACE satellite mission. The monthly storage changes are shown as anomalies for the period April 2002-May 2013 with 24-month smoothing. JS Famiglietti, The Global Groundwater Crisis, Nature Climate Change, November 2014.

20

2.3. Energy

Rising energy demand in Asia means that power infrastructure, including hydropower, is

high on the agenda. Asia’s current installed hydropower generation capacity (including pumped

storage) is 613,041 MW36. Of this capacity, about 55% is in China and 8% in India and Russia.

In 2018, total generation in Asia amounted to 1957 terawatt hours (TWh), with about half coming

from China alone37 (differences between actual generation and installed generation are due to

climatic variability, variable performance of facilities, underreporting of actual generation). Asia’s

technical potential in hydropower is much larger, at about 5980 TWh38. This potential is well

recognized in Asia, where investments in hydropower have been growing in recent years39 and

where development of hydropower, in an economically, environmentally and socially sound

manner could make an important contribution to energy security.

Beyond hydropower, water sector issues can impact other types of power generation.

Thermal power generation has been shown to be vulnerable to water scarcity in some parts of

Asia as water is required for activities such as cooling40. Addressing these vulnerabilities will

require not only investments in power plants (i.e., recirculating systems consume less water than

once-through systems), but also water resources management interventions to minimize potential

conflicts with other users 41 . Given the vulnerability of Asia’s energy sector to water-related

disruptions, notably flooding and drought, infrastructure investments involving both water and

energy will have to take into account the changing frequency and intensity of water-related

hazards under climate change.

Water use and energy efficiency are also interlinked. Inefficiencies in the use of one resource

have an impact on the other. Pumping plays an important role in Asia’s irrigated agriculture and

accounts for significant operating costs. In Central Asia, the irrigation sector accounts for a

significant proportion of electricity use42. Similarly, electricity costs are usually between 5 to 30

percent of total operating costs among water and wastewater utilities worldwide43. The share is

even higher in some Asian countries, such as India and Bangladesh where it can go up to 40

percent or more44. Such high costs translate into often unsustainable operating costs, making

energy efficiency improvements a key measure to reduce operating costs and improve the

financial health of water utilities and irrigation agencies. Technologies for energy recovery in

wastewater treatment plants could also further reduce the total electricity demands of the water

sector, reduce operating costs and contribute to meeting carbon emission reduction targets with

the potential to mobilize climate funds (e.g. green bonds, see Section 5).

2.4. Water-Related Disasters: Floods and Droughts

Throughout Asia, floods and droughts impact millions of people and cause losses in

excess of tens of billions of dollars each year. People living in the Asia-Pacific region are now

four times more likely to be affected by natural disasters, mostly floods and droughts, than those

living in Africa, and 25 times more likely than those living in Europe or North America45. Floods

and storms are the most common types of disasters in the region, and these cause the most

economic damage (see Table 2.2).

21

Table 2.2. Recent significant water-related disasters in the Asia and Pacific region

Note: Tsunamis not included. Water-related disasters that took place in Western Asia are not included. Source: IWMI using data from the Asian

Development Bank. 2019. Recent significant disasters in the Asia and Pacific Region. Asian Development Bank. Manila.

Droughts have devastating cumulative impacts on human development, as well as

economic and environmental impacts including land degradation and decreased

agriculture. Agricultural economies in South Asia and South East Asia are particularly vulnerable

to droughts. In these regions, eighty percent of the economic impact of drought occurs in the

agriculture sector 46 . Under climate change, large-scale reduction in precipitation and more

frequent droughts are expected to occur in East Asia47, South East Asia48 and in arid Central and

Western Asia49.

The rising costs associated with increases in frequency and severity of flooding drive

demand for flood control infrastructure. AIIB client countries face a range of flood hazards

from more intense rainfall events, tropical cyclones, storm surges, and sea-level rise. From 1900

to 2012, 1,625 flood disasters (40% of total disasters worldwide) resulted in 6.8 million deaths

(98% of flood-related deaths worldwide), displaced 3.4 billion persons (95% of affected persons

worldwide), and caused at least $330 billion in economic losses in Asia50. These flood hazards

are perennial. The monsoon periodically claims the lives of thousands of people and causes

billions of dollars’ worth of damage51. For example, the 2010 Pakistan floods and the 2011

Thailand floods caused economic losses of the order of USD 9.5 billion (5.3% of GDP) and USD

40 billion (10% of GDP) respectively. Asian countries are also vulnerable to flooding caused by

tropical storms (cyclones or typhoons, depending on the geographical location). Typhoon Haiyan

in the Philippines in 2013 killed 7415 people and resulted in USD 10 billion in damages (about

3.7% of GDP)52. With climate change, the frequency and intensity of tropical cyclones is projected

to increase53.

Coastal zones face heightened risks from climate change and flooding. Asian coastal zones

are vulnerable to the confluence of climate change-related hazards, including accelerated sea

level rise, intensification of tropical cyclones, extreme waves and storm surges54. Tens of millions

of people living in Asia’s coastal zones must prepare for sea-level rise, with small-island Pacific

Type of event Floods Cyclone Drought

Event Deaths EventPeople affected

(million)Event

Estimated

damage (billion

USD)

Bangladesh (1991) 138987 India (2002) 300 Thailand (2011) 40 (10.8% GDP)

Myanmar (2008) 138366 China (1998) 242 China (1998) 31 (3.1% GDP)

India (1999) 10378 China (1991) 210 China (2010) 18 (0.3% GDP)

Philippines (2013) 7415 China (2003) 155 India (2014) 16 (0.79% GDP)

India (2013) 6453 China (1996) 154 China (2012) 14 (0.17% GDP)

Philippines (2013) 6083 China (2010) 140 Philippines (2013) 10

Bangladesh (2007) 4275 India (1993) 128 Japan (1991) 10

China (1998) 4250 China (2007) 111 Pakistan (2010) 9.5 (5.35% GDP)

China (1996) 4091 China (1994) 88 Japan (2000) 7.4 bn

India (1998) 3471 China (2002) 64 India (2010) 7 (0.34% GDP)

By estimated economic damageBy number of deaths By number of people affected

22

nations, parts of Bangladesh, China and Indonesia being among the most vulnerable to

permanent inundation55. Asia’s cities located in deltaic settings have been identified as a global

hotspot for coastal flooding. Nine of the ten port cities with more than 1 million inhabitants and

with the highest exposure to coastal flooding in the world by 2070 are in Asia (Kolkata, Mumbai,

Dhaka, Guangzhou, Ho Chi Minh City, Shanghai, Bangkok, Rangoon, and Hai Phòng)56. Similarly,

many Asian cities also top the world rankings in terms of assets exposed: Guangzhou, Kolkata,

Shanghai, Mumbai, Tianjin, Tokyo, Hong Kong, and Bangkok57.

Storm water infrastructure will be particularly needed in cities. Exposure to flooding is

increasing with urbanization, with a projected 410 million urban Asians at risk of coastal flooding

and 350 million at risk of inland flooding by 202558. Asia has the largest number of cities in the

world classified as having extreme risk of water-related disasters 59. Many of Asia’s megacities,

such as Bangkok, Dhaka, Ho Chi Minh City and Tianjin are at risk from both urban and coastal

flooding. Present storm water systems and flood control infrastructure will need to be upgraded

and expanded60.

In mitigating flood and drought risks, Asian countries also face challenges related to the

low coverage of hydro-meteorological systems. With low coverage of hydro-meteorological

monitoring networks (e.g., water level sensors, automated weather stations) and weak hydro-

meteorological services (e.g., procedures for early warning, hydrological information products),

Asian countries have a challenge in preparing for and responding to water-related disasters. AIIB

client countries need to improve their flood and drought monitoring and forecasting ability, as well

as develop early warning systems for communities61. Efforts to strengthen disaster early warning

systems and weather services require national level modernization efforts but also have a regional

dimension. Given the cross-border nature of hydrological and meteorological issues (e.g.,

cyclones occurring in the Bay of Bengal affect several countries), these investments will have to

be supported by efforts to improve the connectivity of these systems and information sharing62.

Unless risk mitigation measures are put in place, economic losses caused by water-related

disasters, notably floods, will propagate along regional supply chains and trade networks.

Within global supply chain and trade networks, regional production reductions caused by extreme

weather and water-related disasters (e.g., floods, heat waves, droughts) can affect economic

sectors elsewhere via supply shortages, changes in demand, and associated price signals 63,64.

The 2011 Thailand floods, for example, not only cost the Thai economy more than USD 40 billion

in direct economic losses65, but also had a negative impact on the regional economy through

supply shortages and increases in the price of goods. This was particularly true for the local

disruptions to the automotive and electronics industries, which propagated through Asia and the

world economy (e.g., lack of hard disk drives increased the price of desktop HDD by 80–190%

and mobile HDD by 80–150%)66. Given the level of interconnectedness of the Asian economy,

management of water-related risks to reduce the indirect damage of disasters is a priority.

23

2.5. Freshwater Ecosystems

Water pollution and deterioration of freshwater ecosystems are big challenges in Asia.

Freshwater ecosystems are under increasing stress from unsustainable water abstraction,

nutrient loads from fertilizer, untreated municipal wastewater, and industrial effluent. South and

East Asia show the greatest levels of eutrophication in water bodies among Asian sub-regions67.

Changes in precipitation due to climate change are expected to exacerbate eutrophication in

India, China and Southeast Asia68. Asia’s freshwater resources and ecosystems are also under

stress from increasing salinity. Salinity is a problem in Central Asia’s arid regions as well as many

of Asia’s coastal areas where saline waters are intruding aquifers and deltas, including the

Ganges-Brahmaputra, Mekong, and Indus deltas.

Rapid industrialization over the past decades has drastically increased industrial pollutant

discharges. This exacerbates water shortages in several parts of Asia. Data from China reveals

that about 1/5 of the country’s rivers and lakes are too contaminated (from industrial pollution) for

any type of water use69. Industrial water pollution levels, as indicated by BOD emissions per

US$1,000 of GDP, are high across Asia and particularly high in Central Asia (>10 kg

BOD/US$1,000 GDP) and South Asia (8 kg), compared to values of <1 kg in countries such as

the USA and Japan70. Five Asian rivers (Ganges, Yangtze, Yellow, Huai, Indus) top the world’s

list for the largest number of people exposed to organic pollution risk according to the 2018 China

Ecological Environment Bulletin. Asia’s rivers are also the largest sources of plastic and mercury

pollution in the world’s oceans71.

Freshwater ecosystems provide a range of services that support social and economic

outcomes. This includes provisioning services (e.g. fisheries) and regulating services (e.g. flow

regulation and flood control, water pollutant assimilation) among others. Protection of ecosystems

from further deterioration and maintenance of key ecosystem functions is becoming a priority in

water infrastructure planning, in particular given the importance of freshwater ecosystems for

climate change adaptation72. Asia tops the world for the total volume of investment in watershed

protection (about 14.2 billion USD per year), which is just one area of investment in ‘green

infrastructure’73 . Investments in the maintenance and conservation of nature-based or ‘green’

infrastructure also include protection and expansion of mangroves along coastal zones (for

instance in Vietnam) and wetlands in urban areas (for instance, in Sri Lanka)74. Financing for this

type of infrastructure that provides socio-economic as well as environmental benefits requires

innovative financial approaches and policies75.

2.6. Navigation

Use of inland waterways for trade and improved connectivity is emerging as an option to

reduce costs of transport and carbon emissions. Transporting people and goods over inland

waterways, such as rivers and canals, can decrease road traffic, accidents and pollution while

increasing cross-border trade and in general reduce the overall cost of transport. However,

appropriate measures need to be put in place to safeguard ecosystems and benefit riverine

24

populations. The potential of many of Asia’s inland waterways has already been tapped in some

countries, notably in China, and has been recognized by other national and sub-national

governments as a potential area for investment. In India, for instance, where 14500 km of

navigable inland waterways exist but water carries a mere 0.5 percent of the country’s freight

traffic, the government is actively working to develop inland waterways as an alternative mode of

transport76. Similarly, development and restoration of inland waterways transport systems are

being considered in Myanmar, Vietnam (25% of transport volume by 2020), and Lao PDR (30%

of transport volume by 2020) among others77.

Notes and References

1 IWMI estimates based on data from: Sadoff, C.W., et al. 2015. Securing water, sustaining growth: Report of the GWP/OECD Task Force on Water Security. 2 This is the same classification used in AIIB’s Energy Sector Strategy 3 Brown, C. and Lall, U., 2006, November. Water and economic development: The role of variability and a framework for resilience. In Natural resources forum (Vol. 30, No. 4, pp. 306-317). Oxford, UK: Blackwell Publishing Ltd. 4 Alcamo and Henrichs, 2002 5 Damania, R., Desbureaux, S., Hyland, M., Islam, A., Moore, S., Rodella, A.S., Russ, J. and Zaveri, E., 2017. Uncharted waters:

The new economics of water scarcity and variability. The World Bank. 6 See Map 1.2 in Damania, R., Desbureaux, S., Hyland, M., Islam, A., Moore, S., Rodella, A.S., Russ, J. and Zaveri, E., 2017. Uncharted waters: The new economics of water scarcity and variability. The World Bank 7 Asian Development Bank. 2017. Meeting Asia’s infrastructure needs. Asian Development Bank: Manila. 8 World Health Organization, WHO/UNICEF Joint Water Supply and Sanitation Monitoring Programme, 2018. Global data on Water Supply, Sanitation and Hygiene (WASH). https://washdata.org/data 9 ibid 10 Basic sanitation services entail use of improved facilities which are not shared with other households. Improved sanitation facilities are those designed to hygienically separate excreta from human contact, and include: flush/pour flush to piped sewer

system, septic tanks or pit latrines; ventilated improved pit latrines, composting toilets or pit latrines with slabs 11 World Health Organization, WHO/UNICEF Joint Water Supply and Sanitation Monitoring Programme, 2018. Global data on Water Supply, Sanitation and Hygiene (WASH). https://washdata.org/data 12 Asian Development Bank, 2016. Asian Water Development Outlook 2016: Strengthening Water Security in Asia and the Pacific. Asian Development Bank. 13 ibid 14 This is estimated using data from WHO and Unicef Joint Monitoring Programme (https://washdata.org/data). 15 Asian Development Bank, 2016. Asian Water Development Outlook 2016: Strengthening Water Security in Asia and the Pacific. Asian Development Bank. 16 International Desalination Association. 2019. The IDA Water Security Handbook 2018 – 2019. IDA, Dubai. 17 Jones, E., Qadir, M., van Vliet, M.T., Smakhtin, V. and Kang, S.M., 2018. The state of desalination and brine production: A global outlook. Science of the Total Environment. 18 World Bank. 2017. Citywide inclusive sanitation. World Bank: Washington D.C. 19 Larsen, T.A., Hoffmann, S., Lüthi, C., Truffer, B. and Maurer, M., 2016. Emerging solutions to the water challenges of an urbanizing world. Science, 352(6288), pp.928-933. 20 ibid 21 Chowdhry, S., Koné, D. 2012. Business Analysis of Fecal Sludge Management: Emptying and Transportation Services in Africa and Asia. Bill & Melinda Gates Foundation, Seattle USA. 22 Ravikumar, J. 2018. The World Bank and citywide inclusive sanitation in Asia. Presented at the ADBI Development Partner

Roundtable on Sustainable Sanitation in Asia. Tokyo, 20 September 2018. 23 Liemberg, R., Wyatt, A. 2018. Quantifying the global non-revenue water problem. Presented at the Water Loss 2018 conference in Cape Town, South Africa. Available from: http://www.waterloss2018.com/wp-content/uploads/2018/06/08/A24.pdf 24 Soppe, G., Janson, N. and Piantini, S., 2018. Water Utility Turnaround Framework: A Guide for Improving Performance. World Bank, Washington, DC. © World Bank. 25 Meier, J., Zabel, F. and Mauser, W., 2018. A global approach to estimate irrigated areas–a comparison between different data

and statistics. Hydrology and Earth System Sciences, 22(2), pp.1119-1133. 26 Asian Development Bank. 2017. Financing Asian Irrigation: choices before us. Asian Development Bank: Manila. 27 Rosegrant, M.W., et al., 2017. Quantitative foresight modeling to inform the CGIAR research portfolio. Intl Food Policy Res Inst. 28 http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/131144/filename/131355.pdf 29 World Bank. 2003. Irrigation in Central Asia. Social, Economic and Environmental Considerations. World Bank: Washington, D.C. 30 Rasul, G., 2016. Managing the food, water, and energy nexus for achieving the Sustainable Development Goals in South Asia.

Environmental Development, 18, pp.14-25.

25

31 http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/131144/filename/131355.pdf 32 Asian Development Bank. 2017. Financing Asian Irrigation: choices before us. Asian Development Bank: Manila. 33 Asian Development Bank (ADB). 2009. Irrigation and Drainage: An Evaluation Study from

ADB’s Independent Evaluation Department. Manila. https://www.adb.org/sites/default /files/evaluation-document/35962/files/ss-irrigation-drainage.pdf 34 Shah, T., 2010. Taming the anarchy: Groundwater governance in South Asia. Routledge. 35 Wada, Y. and Bierkens, M.F., 2014. Sustainability of global water use: past reconstruction and future projections. Environmental Research Letters, 9(10), p.104003. 36 International Hydropower Association. 2018. 2018 Hydropower status report. London: IHA. 37 ibid 38 Asian Infrastructure Investment Bank. 2018. Energy Sector Strategy: Sustainable Energy for Asia. Beijing: AIIB. 39 Zarfl, C., Lumsdon, A.E., Berlekamp, J., Tydecks, L. and Tockner, K., 2015. A global boom in hydropower dam construction.

Aquatic Sciences, 77(1), pp.161-170. 40 Zheng, X., Wang, C., Cai, W., Kummu, M. and Varis, O., 2016. The vulnerability of thermoelectric power generation to water scarcity in China: Current status and future scenarios for power planning and climate change. Applied energy, 171, pp.444-455. 41 Van Vliet, M.T., Wiberg, D., Leduc, S. and Riahi, K., 2016. Power-generation system vulnerability and adaptation to changes in climate and water resources. Nature Climate Change, 6(4), p.375. 42 Burt, Charles M..2017. The costs of irrigation inefficiency in Tajikistan (English). Washington, D.C. : World Bank Group. 43 World Bank. 2012. A primer on energy efficiency for municipal water and wastewater utilities (English). Energy Sector Management Assistance Program; technical report 001/12. Washington, DC: World Bank. 44 ibid 45 Asian Development Bank. 2012. Special Evaluation Study on ADB's Response to Natural Disasters and Disaster Risks. Asian Development Bank: Manila. 46 UNESCAP. 2019. Ready for the dry years. Building resilience to drought in South-East Asia. UNESCAP: Bangkok. 47 Lu, J., Carbone, G.J. and Grego, J.M., 2019. Uncertainty and hotspots in 21st century projections of agricultural drought from CMIP5 models. Scientific reports, 9(1), p.4922. 48 Zhang, L. and Zhou, T., 2015. Drought over East Asia: a review. Journal of Climate, 28(8), pp.3375-3399. 49 Hall, J.W., Grey, D., Garrick, D., Fung, F., Brown, C., Dadson, S.J. and Sadoff, C.W., 2014. Coping with the curse of freshwater variability. Science, 346(6208), pp.429-430. 50 Asian Development Bank. 2013. Indus basin floods: Mechanisms, impacts and management. Asian Development Bank: Manila. 51 Kron, W. 2018. Asian floods overshadowed by Houston flooding. Munich Re. 52 Asian Development Bank. 2019. Recent significant disasters in the Asia and Pacific Region. Asian Development Bank. Manila. 53 Mei, W. and Xie, S.P., 2016. Intensification of landfalling typhoons over the northwest Pacific since the late 1970s. Nature

Geoscience, 9(10), p.753. 54 Pillai, P., Philips, B.R., Shyamsundar, P., Ahmed, K. and Wang, L., 2010. Climate risks and adaptation in Asian coastal megacities: a synthesis report. World Bank, Washington, DC. 55 Dasgupta, S.; et al. 2007. The impact of sea level rise on developing countries: a comparative analysis (English). Policy,

Research working paper; no. WPS 4136. Washington, DC: World Bank. 56 Hanson, S., Nicholls, R., Ranger, N., Hallegatte, S., Corfee-Morlot, J., Herweijer, C. and Chateau, J., 2011. A global ranking of port cities with high exposure to climate extremes. Climatic change, 104(1), pp.89-111. 57 ibid 58 Asian Development Bank. 2012. Green Urbanization in Asia Key Indicators for Asia and the Pacific 2012. Special Chapter. Manila: Asian Development Bank. 59 Asian Development Bank. 2012. Special Evaluation Study on ADB's Response to Natural Disasters and Disaster Risks. Asian Development Bank: Manila. 60 Hallegatte, S., Green, C., Nicholls, R.J. and Corfee-Morlot, J., 2013. Future flood losses in major coastal cities. Nature climate

change, 3(9), p.802. 61 GFDRR. 2018. Results in Resilience: South Asia Regional Program for Hydromet Services and Resilience. Washington, DC: Global Facility for Disaster Risk Reduction. 62 World Bank. 2017. South Asia Program on Hydromet, Climate Services and Resilience. World Bank. Washington D.C.. Available from: http://www.worldbank.org/en/region/sar/brief/south-asia-hydrological-and-meteorological-hydromet-resilience-program 63 Willner, S.N., Otto, C. and Levermann, A., 2018. Global economic response to river floods. Nature Climate Change, 8(7), p.594. 64 Wenz, L. and Levermann, A., 2016. Enhanced economic connectivity to foster heat stress–related losses. Science advances, 2(6), p.e1501026. 65 Asian Development Bank. 2019. Recent significant disasters in the Asia and Pacific Region. Asian Development Bank. Manila. 66 Haraguchi, M. and Lall, U., 2015. Flood risks and impacts: A case study of Thailand’s floods in 2011 and research questions for supply chain decision making. International Journal of Disaster Risk Reduction, 14, pp.256-272. 67 Mateo-Sagasta, J., Zadeh, S.M., Turral, H. and Burke, J., 2017. Water pollution from agriculture: a global review. Food and

Agriculture Organization of the United Nations and the International Water Management Institute, Rome. 68 Sinha, E., Michalak, A.M. and Balaji, V., 2017. Eutrophication will increase during the 21st century as a result of precipitation changes. Science, 357(6349), pp.405-408. 69 Hu, Y. and Cheng, H., 2013. Water pollution during China's industrial transition. Environmental Development, 8, pp.57-73. 70 Evans, Alexandra EV, Munir A. Hanjra, Yunlu Jiang, Manzoor Qadir, and Pay Drechsel. "Water quality: assessment of the current situation in Asia." International Journal of Water Resources Development 28, no. 2 (2012): 195-216. 71 Schmidt, C., Krauth, T. and Wagner, S., 2017. Export of plastic debris by rivers into the sea. Environmental science & technology, 51(21), pp.12246-12253 72 World Bank. 2010. Flowing forward: freshwater ecosystem adaptation to climate change in water resources management and

biodiversity conservation. 73 Browder, G. et al. 2019. Integrating Green and Gray : Creating Next Generation Infrastructure. Washington, DC: World Bank and World Resources Institute.

26

74 ibid 75 Sachs, J. D., W. T. Woo, N. Yoshino, and F. Taghizadeh-Hesary. 2019. Why Is Green Finance Important? ADBI Working Paper 917. Tokyo: Asian Development Bank Institute. Available: https://www.adb.org/publications/why-green-finance-important 76 Government of India. Ministry of Shipping. 2018. Status of Development of Inland Waterways in the Country. Press information centre. Available from: http://pib.nic.in/newsite/PrintRelease.aspx?relid=180801 77 Asian Development Bank (2013) Second high level workshop on inland waterway transport. 15-16 Manila, Philippines. Workshop

Proceedings. Manila: Asian Development Bank.

27

3. Cross-Cutting Issues

Across the water sub-sectors, several common themes emerge:

3.1. Governance

The water crisis is often described as a crisis of governance. Water governance refers to

the range of political, social, economic and administrative systems that are in place to manage

water resources and to deliver water services to different levels of society1. It includes the

institutions, laws, and regulations but also relates to government policies and actions and its

relationships to the private sector and civil society2. Each water sub-sector will have its own

governance environment and associated challenges. These are some of the most challenging

issues to resolve requiring concerted effort and attention. Decades of experience show that

unless an effective governance framework is in place, capable of managing interdependencies

and conflicting objectives across policy areas and levels of government, investments in water do

not fully achieve the intended outcomes in a sustainable manner3. Weak governance can in fact

lead to greater water risks. Evaluations of water investments across the world suggest that a

minimum level of governance is needed before desired outcomes can start to improve4.

The governance challenge relates to the fact that water connects across sectors and

people, as well as across geographic and temporal scales. Hydrography (e.g. physical basin,

landscape) and administrative boundaries (from national to state to local to city) rarely coincide.

This results in interdependencies across levels of government that require coordination to mitigate

fragmentation in implementation. Institutional arrangements are needed that support both

horizontal coordination (i.e. coordinating water policy with non-water related sectors such as

energy, environment, health) and vertical coordination (i.e. countries have allocated increasingly

complex and resource-intensive responsibilities to sub-national governments). These

characteristics require a multi-level governance perspective 5 , which includes efforts to

decentralize and move responsibilities for management and services closer to the local levels.

Given the ubiquitous challenge with institutional and policy reform, a “principled pragmatism”

approach is needed. That is, “principled pragmatism stresses the importance of economic

principles, such as ensuring that users take financial and resource costs into account when using

water, and the need to tailor solutions to specific, widely varying natural, cultural, economic and

political circumstances”6.

At the service provider level governance is more localized but typically inadequate.

Whether considering the delivery of irrigation water, the treatment and distribution of drinking

water or the collection of wastewaters, the characteristics of well-run service providers are similar.

They have managerial and financial autonomy, they have internal and external accountability,

they are market (i.e. efficiency) oriented and customer-focused. Sadly, most of these

characteristics are missing in Asian service providers and this results in sub-optimal technical and

financial performance. Reforming existing institutions and putting in place the proper policies and

regulatory frameworks will be more challenging than the implementation of infrastructure itself.

28

3.2 Nexus

Water issues faced by countries can often originate from the unmanaged impacts of

investments in other sectors. Notable examples include increased risk of flooding due to

uncontrolled urban development in floodplains or groundwater depletion due to subsidized

electricity for pumping. When the interlinkages between water and other sectors are not

considered, progress towards sustainable economic growth and human wellbeing is often

hindered in the long-term. These interlinkages between water and other sectors are particularly

strong for energy and agriculture (i.e. the water-energy-food nexus). The water sector needs

energy to pump, clean and transfer water, while the energy sector generally needs to access

water for cooling and power generation. Water is the key factor of production in agriculture, and

in turn agriculture affects water quantity and quality for all other users. Identifying synergies and

managing trade-offs among sectors (i.e. a nexus approach) is essential to diagnose water sector

issues and define strategic directions for water infrastructure investment.

As such, investments to address Asia’s water challenges cannot be considered in

isolation. Nexus thinking means understanding water and other sectors, notably, energy, food,

environment, and land, and their interrelationships and considering the cumulative effects of

interventions rather than discrete sectoral impacts alone. It also involves thinking across

government institutions where responsibilities for each lie. Given the interactions among water

and other sectors, there is increasing emphasis on integrated investments capable of exploiting

synergies between sectors7. Analytical methods have been developed to reveal trade-offs and

synergies among sectors8 and are increasingly being considered by development banks9. These

can be applied in project appraisal and evaluation to identify multi-sectoral impacts of water

investments.

3.3 Gender and Inequality

Gender plays a crucial role in countries’ ability to ensure improved and inclusive water

and sanitation services and water resource management for all citizens. There is a growing

body of literature around the impacts of poor water and sanitation services on health and

educational outcomes (particularly for girls) and on intergenerational impacts that derive from

stunting 10 . Droughts and floods also often exacerbate existing gender inequalities or have

disproportionate impacts on women and girls. For instance, rainfall shocks are linked to increases

in violence against women in India11. Similarly, female-led farms are at greatest risk of not

receiving irrigation water and not being represented in user organizations in Central Asia 12.

Achieving equity is a common challenge in water related services. In Pakistan, poor sanitation

facilities in schools deter adolescent girls, from education: up to 50% of girls do not attend school

during menstruation 13 . These examples underscore the complex and multiple relationships

amongst water, gender, and inequality (amongst different groups, including disabled populations).

Water infrastructure investments will not deliver their expected benefits and services unless they

consider these dimensions and how they interact with other factors such as class, ethnicity and

geography14,15.

29

3.4 Resilience

Infrastructure and resilience are closely linked. Resilience is a key objective of infrastructure

investment. Infrastructure makes societies and economies more resilient to a range of potential

disruptions, notably those due to climate change and related water extremes. Resilience also

makes economies more competitive, as investors are more likely to engage and invest in regions

that are resilient to the inevitable disruptions occurring in an uncertain world16. Resilience also

needs to be a key attribute of infrastructure itself. Resilient infrastructure is planned, designed,

built and operated in a way that anticipates, prepares for, and adapts to uncertain circumstances,

including climate change and water-related disasters, changing consumption patterns and digital

disruptions17. A range of approaches are emerging and being tested for resilient infrastructure,

especially in cities.

City resilience cannot be achieved and sustained without water infrastructure and

management. The role that water infrastructure plays is recognized in AIIB’s Sustainable Cities

Strategy. As people and assets concentrate in cities, demands for services increase as do

exposure to water-related disasters and pollution. While the water issues facing Asian cities were

discussed in earlier sections, the governance capacity18 will be important to the sustainability and

efficiency of infrastructure investments. At the heart of this is the integrated urban water

management (IUWM) approach which emphasizes: (1) coordinated planning of water services

(water supply, sewerage and drainage) and other city services (e.g., transport, green spaces); (2)

consideration of decentralized options for infrastructure provision (wastewater, stormwater reuse

opportunities); (3) diversification of water sources to include unconventional sources (wastewater,

sink drainage, other discharges) with traditional (surface and groundwater resources,

desalination) sources; and (4) explicit consideration and integration of ecosystem protection and

‘green’ infrastructure, including protecting water at its source (see Section 2)19.

Achieving city resilience requires an investment approach which carefully considers

overlaps with other sectors. Water investments can overlap with other sectors’ investments in

cities (e.g., transport, energy) and also in surrounding areas (e.g., agriculture, environmental

conservation). These overlaps generate synergies between sectors, for instance through mutually

beneficial material and resource flows. For example, investments in urban wastewater treatment

have the potential to benefit the agricultural sector through reuse of wastewater for irrigation in

peri-urban areas, as observed in some parts of Asia20. Investments in urban greening can also

provide stormwater retention, storage and drainage services, as demonstrated by China’s sponge

cities projects or Colombo’s urban wetlands 21 . However, the overlapping nature of urban

infrastructure also generates risks, arising for example from the cascading failures in often

mutually dependent power and water infrastructure systems (e.g., the power blackout resulting

from Hurricane Sandy in 2012, which led to a loss of water supply in New York City22).

Opportunities for water infrastructure financing in cities are often limited. Less than 20% of

the largest 500 cities in developing countries are deemed creditworthy in their local context,

severely constricting their capacity to finance investments in water infrastructure 23 . In some

developing countries, the market is not yet sufficiently developed to enable the flow of capital into

urban infrastructure projects and local government capacity is low. The multi-sectoral nature of

30

infrastructure investment in urban areas and the need for spatial integration (e.g., town

development planning) means that innovative financing opportunities, such as land value capture,

can be harnessed to finance some of the required water infrastructure24. There is no doubt that

to address sector resilience issues in urban areas and attract financing, city governments must

ensure that the institutional frameworks are in place to promote integrated urban development.

Notes and References

1 Rogers, P., AW, Hall. 2003. Effective water governance. Global Water Partnership Technical Committee (TEC). TEC Background Papers No. 7. 2 ibid 3 Organisation for Economic Co-operation and Development, 2011. Water governance in OECD countries: A multi-level approach. OECD publishing. 4 Asian Development Bank (2016) Asian Water Development Outlook 2016: Strengthening Water Security in Asia and the Pacific. Manila: Asian Development Bank. 5 Ostrom, E. 2010. Beyond markets and states: polycentric governance of complex economic systems. American Economic Review.

100(3), 641-672. 6 World Bank. 2004. Water resources sector strategy : strategic directions for World Bank engagement (English). Washington, DC: World Bank. 7 World Bank Group. 2018. Thirsty Energy: Modeling the Water-Energy Nexus in China. World Bank, Washington, DC. 8 Liu, J., Hull, V., Godfray, H.C.J., Tilman, D., Gleick, P., Hoff, H., Pahl-Wostl, C., Xu, Z., Chung, M.G., Sun, J. and Li, S., 2018. Nexus approaches to global sustainable development. Nature Sustainability, 1(9), p.466. 9 Borgomeo, Edoardo; Jagerskog, Anders; Talbi, Amal; Wijnen, Marcus; Hejazi, Mohamad; Miralles-Wilhelm, Fernando. 2018. The Water-Energy-Food Nexus in the Middle East and North Africa : Scenarios for a Sustainable Future. World Bank, Washington, DC. 10 Hyland, M. and Russ, J., 2019. Water as destiny–The long-term impacts of drought in sub-Saharan Africa. World Development, 115, pp.30-45. 11 Sekhri, S. and Storeygard, A., 2014. Dowry deaths: Response to weather variability in India. Journal of development economics, 111, pp.212-223. 12 Balasubramanya, S., 2019. Effects of training duration and the role of gender on farm participation in water user associations in

Southern Tajikistan: Implications for irrigation management. Agricultural Water Management, 216, pp.1-11. 13 Young, W.J., Anwar, A., Bhatti, T., Borgomeo, E., Davies, S., Garthwaite III, W.R., Gilmont, E.M., Leb, C., Lytton, L., Makin, I. and Saeed, B., 2019. Pakistan: Getting More from Water. World Bank. 14 Resurrección B.P. et al. (2019) In the Shadows of the Himalayan Mountains: Persistent Gender and Social Exclusion in Development. In: Wester P., Mishra A., Mukherji A., Shrestha A. (eds) The Hindu Kush Himalaya Assessment. Springer, Cham 15 Das, Maitreyi Bordia. 2017. The Rising Tide: A New Look at Water and Gender. World Bank, Washington, DC. © World Bank. 16 Flynn, SE (2018) The future of infrastructure and resilience. A presentation to Joint OECD- EU JRC workshop: system thinking for

critical infrastructure resilience and security. Paris France, 24 September 2018. http://www.oecd.org/gov/risk/Stephen%20Flynn_Keynote.pdf 17 OECD (2018) Climate-resilient infrastructure. OECD Environment Policy Paper No. 14. Policy Perspectives. OECD: Paris. 18 Asian Infrastructure Investment Bank. 2018. Study on sustainable cities. AIIB: Beijing. 19 Global Water Partnership. 2012. Integrated Urban Water Management. Briefing Note. Available from: https://www.gwp.org/globalassets/global/toolbox/references/iuwm-breifing-note.pdf 20 Otoo, Miriam; Drechsel, Pay. (Eds.) 2018. Resource recovery from waste: business models for energy, nutrient and water reuse in low- and middle-income countries. Oxon, UK: Routledge - Earthscan. 816p. 21 Browder, G. et al. 2019. Integrating Green and Gray: Creating Next Generation Infrastructure. Washington, DC: World Bank and

World Resources Institute. 22 Zhang, Y., Yang, N. & Lall, U. 2016. Modeling and simulation of the vulnerability of interdependent power-water infrastructure networks to cascading failures. J. Syst. Sci. Syst. Eng., 25: 102. https://doi.org/10.1007/s11518-016-5295-3 23 World Bank. 2017. Resilient cities. World Bank: Washington D.C. 24 Caldecott, B. 2018. Water infrastructure for climate adaptation: the opportunity to scale up funding and financing. World Water Council and Global Water Partnership.

31

4 Water Infrastructure

Sustained investments in water infrastructure will be critical to meeting the challenges

described earlier. Water infrastructure will be an essential pillar for growing economies and

central to delivering services, managing the resource, adapting to climate change, and in

mitigating cross-border risks. Many countries have already invested heavily in major hydraulic

infrastructure such as multi-purpose dams, canals, dikes and inter-basin transfer schemes, to

provide security against climatic variability. All countries will need to be active in both improving

management of existing infrastructure and, in some cases, development of new infrastructure.

Moreover, not all water problems can be solved with infrastructure alone nor through better

management alone – some balance is necessary. Although many argue that some “minimum

platform” of infrastructure is needed to achieve water security1, this infrastructure is a necessary

but not sufficient condition for quality service delivery and broad water resource management.

There is a diversity of water infrastructure making generalizing difficult. No single approach

to financing, funding, and sustainability of water infrastructure will be feasible in all circumstances.

Recognizing the different “characteristics” of each water infrastructure and the different “cultures”

of the sub-sectors that they support will be critical to understanding the risk-reward tradeoffs of

each. Generally, water infrastructure provides services, management, or both (Figure 4.1).

Infrastructure can be used to provide strategic functions such as storage, water resources

management, bulk water supply to different sub-sectors, as well as provide for specific services

including electricity generation (hydropower and cooling in thermal power stations), irrigation and

drainage, municipal and domestic water supply, municipal sewerage and stormwater

management, navigation, flood risk reduction (both at the river and city scales), recreation, and

assuring sufficient water for ecological services. Such a broad perspective on water infrastructure

is required because of the growing needs across a wide range of water-related sub-sectors and

the large backlog for the replacement and modernization of existing infrastructure.

Figure 4.1. Water infrastructure is the enabler, together with institutions and management

instruments, of multiple services.

Source: Adapted from: Global Water Partnership, Technical Advisory Committee. 2000. Integrated Water Resources Management. Stockholm: Global

Water Partnership.

32

Water related management and services can be delivered through both “hard” and “soft”

interventions. Interventions are not necessarily confined to physical structures such as dams,

pipelines, canals, treatment works. “Green infrastructure” (i.e. using land, forests, wetlands, and

other natural features) and improved management approaches (e.g. efficiency improvements,

demand management) are increasingly part of the response to water risks. These softer initiatives

may be more cost effective than physical structures. For example, in New York City, relatively

modest investments in conservation in the upstream watersheds supplying the city’s drinking

water in lieu of the construction of new treatment plant saved the city US $10 billion in construction

costs and over US $100 million a year in operating costs2. In tackling water risks, countries will

have different development agendas and, depending on their economic status, will have different

infrastructure endowments. As such, the balance amongst using these different hard and soft

combinations will vary by client countries.

Multi-purpose water infrastructure (e.g. a dam) deserves special attention. In the face of

increasing hydrologic uncertainty and competing demands of different user groups, the use of

multi-purpose water infrastructure will increasingly play an important role in a country’s quest

towards greater water security. This kind of water infrastructure does present its own unique

challenges, in particular with financing given the large sums typically needed. Moreover, many

different stakeholders may be affected (e.g. land acquisition and resettlement) and impacts on

the environment may be large. Many such large projects may also be on transboundary rivers,

thus involving two or more countries. Nonetheless, the contribution that dams can make to

development is clear3. The ability to store water is essential to matching the uncertain, spatial

and temporal distribution of precipitation with changing human demands. Many countries have

already invested heavily in storage dams. This is particularly the case for high-income and upper-

middle income countries (Figure 4.2, blue bars). In low income and lower-middle income

countries, investments in storage are still needed (Figure 4.2, green bars).

33

Figure 4.2. Dam capacity per capita for selected countries in Asia and the world.

Source: FAO Aquastat database, latest year available. Data for India comes from the Ministry of Water Resources Water Storage Capacity database.

Finally, digital infrastructure is closely intertwined with water infrastructure delivery and

performance. Digital infrastructure offers opportunities to improve resource management and

service delivery through multiple channels. Hydrological monitoring networks and metering

systems are critical to inform investment decisions and water management, and effectively form

part of a country’s water infrastructure assets. In many parts of Asia, water information systems

are inadequate or poorly maintained, undermining countries’ ability to prepare and respond to

disasters. Accurate, reliable, timely and relevant water information acquired and disseminated

through digital infrastructure (e.g. internet of things) underpins the design, maintenance, and

operation of all water infrastructure and the monitoring and appraisal of investments. In this

context, linking investments in water infrastructure with information systems, while also exploiting

recent technological advances (see Box 1) can help ensure the effectiveness of water

infrastructure investments.

World Average

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000

Nepal

Bangladesh

Afghanistan

Mongolia

Indonesia

Pakistan

Fiji

India

Iran

Korea DPR

China

Malaysia

Turkey

Azerbaijan

Australia

Brazil

Iraq

North America

Dam capacity per capita [m3/inhab]

Low Income or Lower MiddleIncome

Upper Middle Income or HighIncome

34

Box 1: Fourth Industrial Revolution (4iR) for Water

The Fourth Industrial revolution is a major transformation marked by a fusion of technologies that is blurring the lines

between physical, digital, and biological systems4. Technologies driving the Fourth Industrial Revolution (4iR) are

numerous including artificial intelligence, robotics, internet of things (IoT), 3-D printing, blockchain, as well as rapid

advances in earth observation, nanotechnology, biotechnology, materials science, and quantum computing. These

innovations present a major opportunity, if harnessed and scaled effectively, to address the world’s most pressing water

security challenges: water scarcity, poor water quality, climate change and variability, depletion of groundwater aquifers,

floods, water governance, and lack of water data5.

4iR technologies have the potential to provide information related to water supply and demand at unprecedented

temporal and spatial resolution. Data collection is rapidly advancing through satellite imagery and earth observation

tools, which are delivering insights on water resources availability, water use and productivity. In-situ sensors and IoT

also allow for a more complete picture of water supply and demand to be obtained. Beyond data collection, these

technologies also allow for better data management (e.g., cloud services, data cubes) and data analysis and

forecasting, through new computing devices, artificial intelligence and machine learning.

The 4iR is allowing for production systems to be redesigned. For water management, this means low-cost approaches

to treat water for human consumption, operate water infrastructure and provide access to water supply and sanitation

services. Advances in nanotechnology have the potential to lower the costs of producing water through desalination

and wastewater reuse, unleashing new water supplies at scales. Additive manufacturing techniques, such as 3D

printing, could be used to produce materials to remove water pollutants or provide water-efficient irrigation systems at

low costs.

Finally, the 4iR revolution creates new opportunities for interaction. In terms of water service delivery, this offers new

channels for cost recovery of water services through mobile payments. With regards to agricultural water management,

new interaction technologies can also help to mitigate agricultural water demands, by sharing information about soil

conditions and crop water requirements to farmers on their mobile devices in real time or in a daily report. Through

improved interaction technologies, multiple stakeholders will also have increased access to data and be able to make

better-informed decisions and cost-effective investments.

4.1 Economic and Financial Characteristics of Water Infrastructure

Different infrastructure will have different return profiles; some generating largely private

economic benefits (e.g. drinking and irrigation services) while some generating largely

public economic benefits (e.g. flood protection, storm water drainage). Some infrastructure,

like multi-purpose dams, may provide both private and public benefits and both services and

management functions. Note that there may be infrastructure that provides, under certain

conditions, common pool and club economic goods as well6. Understanding this is important in

identifying the funding mechanism over the full life cycle (planning, appraisal, implementation,

operation, maintenance and replacement) and for determining the opportunity for private financing

(Figure 4.3). All infrastructure needs to undergo a financial and economic cost-benefit analysis

(CBA) to determine whether scarce financial resources are best allocated to this infrastructure in

comparison to other potential investments in other sectors. Some water infrastructure will have

greater opportunities to generate cash flow through user fees, while other water infrastructure will

be justified largely on economic grounds (funded through taxes and other sources) and will have

limited opportunity to generate financial income streams.

Water services related infrastructure (e.g. WSS, wastewater, irrigation, hydropower) can

potentially draw upon on a wider range of financing modalities, from both governments

and commercial sources. Financing options for functions generating public goods are more

35

limited. Major large strategic water infrastructure, such as large multi-purpose dams, will normally

need to be underpinned with public finance, with the projects possibly structured to include

participation by private investors and commercial lenders (center-right quadrant in Figure 4.3).

Figure 4.3. Economic and financial return for different types of water infrastructure investments.

Source: IWMI. Notes: Figure shows the financing approach most commonly used; however, in reality financing approaches might differ depending on

country circumstances. FIRR: Financial Internal Rate of Return. EIRR: Economic Internal Rate of Return.

Notes and References

1 Grey, D. and Sadoff, C.W., 2007. Sink or swim? Water security for growth and development. Water policy, 9(6), pp.545-571. 2 McDonald, Robert, and Daniel Shemie. Urban Water Blueprint: Mapping conservation solutions to the global water challenge. Washington, DC: The Nature Conservancy, 2014. 3 World Commission on Dams. Dams and development: A new framework for decision-making: The report of the world commission

on dams. Earthscan, 2000. 4 Schwab, K. 2016. "The Fourth Industrial Revolution: what it means and how to respond". World Economic Forum. Retrieved 2019-29-4. 5 World Economic Forum. 2018. Harnessing the Fourth Industrial Revolution for Water. Geneva: World Economic Forum. 6 Common pool economic goods are those that are rivalrous in consumption and non-excludable. The classic example of this is groundwater. Thus, a large public tubewell without any restrictions may be a common pool resource. A club good is one that is

non-rivalrous and excludable. This could be, for example, a large navigation channel.

36

5 Water Infrastructure Investment in Asia

5.1 Investment Trends

Estimates of water infrastructure expenditures are difficult to make due to poor data

availability. The ADB estimates that its member countries1 invested about 880 USD billion in

infrastructure in 2015. Of these 880 USD billion about 5 percent went to the water sector (which

includes water supply and sanitation, dams, irrigation, flood protection and water treatment)2,3.

These regional estimates hide considerable variation across Asian countries, as most

infrastructure investment took place in China and South Asia. Other countries, such as Vietnam

and Bhutan have also been investing significantly in infrastructure4.

Private investment in water infrastructure in Asia is low. Asian countries rely almost

exclusively on public investment for water infrastructure 5 . Telecommunication and energy

infrastructure received much higher shares of private investment in several Asian countries (see

Figure 5.1). Private sector investments in the energy and transport sectors averaged 30 and 20

billion USD per year respectively over the least 10 years while that in water supply and sewerage

infrastructure averaged 1 billion USD per year (Figure 5.2). The higher levels of private

investment in energy and telecommunications can be partly explained by the normally favorable

returns and predictable revenue streams in the sector, as well as regulation and competition

policies favoring private sector engagement.6 Current levels of private investment in water supply

and sewerage are enough to cover just 1% of Asia’s WSS infrastructure needs7.

Figure 5.1. Public and Private investment in infrastructure, selected countries in Asia, 2011.

Source: Asian Development Bank. 2017. Meeting’s Asia infrastructure needs. Manila: ADB.Note: Figures in bracket indicate investment levels in billion (in 2015 prices). Low to

lower middle-income countries include Armenia, Bhutan, Cambodia, Indonesia, Kiribati, Mongolia, Nepal, Pakistan, Philippines, Sri Lanka, and Viet Nam. Upper middle-income

countries include Fiji, Georgia, Malaysia, and Maldives. Government budget is for central government only in Armenia, Georgia , Nepal and Philippines. India, China and the

Russian Federation are excluded in the chart as they would dominate other economies in their income groups. Adding India back to low -lower middle-income group would not

change the pattern much, although adding the PRC back to upper middle-income group would significantly increase the share of public investment across all infrastructure sectors.

Water and sanitation include: dams, irrigation and flood control waterworks, local water and sewer mains, local hot-water and steam pipelines, sewage, and water treatment plant.

37

Figure 5.2. Private investment in infrastructure in Asia, 1994-2018.

Source: IWMI with data from the World Bank private participation in infrastructure database. Note: these estimates differ from the ones shown in Figure

5.1 because China, India, and the Russian Federation are included here. Estimates for information and communication technology represent ICT-

backbone infrastructure (such as fiber-optic cables (land-based/submarine cables), mobile towers, base stations and other hard assets) only.

Private involvement in water and sewerage infrastructure in Asia is almost half that of Latin

America. Over the last ten years, about 55% of the total private participation in water

infrastructure took place in Latin America and the Caribbean. Investments in East Asia and the

Pacific (mostly China) accounted for about 27% of global private investments in water

infrastructure. Countries in Western Asia and South Asia attracted a lower share of private

investments (Figure 5.3). The weak financial case for investing in water infrastructure is a key

factor explaining low levels of private investment. Water is generally an under-valued and

underpriced resource, with low water tariffs resulting in low cost recovery and long pay-back

periods8.

Private investments in water supply and sewerage infrastructure were concentrated in

some of Asia’s lower risk economies. China, the Russian Federation and Malaysia received

the lion’s share of private investment in water infrastructure since 2000, with about half of all

private investments in water infrastructure in China (Figure 5.4). This partly reflects efforts in these

countries to expedite and facilitate infrastructure investments, as well as investor appetite to invest

in more established economies. China, in particular, took several steps to encourage private

investment in public services and infrastructure, including for foreign-based private operators,

through guidelines 9 and the creation of dedicated institutions (e.g., China Public Private

Partnership Center). Of concern is that little or no private investment is taking place in Asia’s

smaller countries, where the financing needs are higher and opportunities to raise funds is lower.

0

10

20

30

40

50

60

US$ billionEnergy

Information and communication technology (ICT) backbone only

Transport

Water and sewerage

38

Figure 5.3. Private investment in water supply and sewerage infrastructure by world sub-region,

share of the total invested globally 2009-2018.

Source: IWMI with data from the World Bank private participation in infrastructure database.

Figure 5.4. Private investment in water supply and sewerage infrastructure in selected Asian

countries, (2000-2018).

Source: IWMI with data from the World Bank private participation in infrastructure database. Countries under ‘others’ include: Papua New Guinea, Turkey,

Armenia, Thailand, Bangladesh, Vietnam, Georgia.

Overall, private finance has not been mobilized on the scale needed, and most of the

financing has gone – not surprisingly - to Asia’s richer nations to commercially attractive

energy and telecom sector. This picture reflects global trends where (1) low-income countries

and water infrastructure have received negligible financing, despite showing some of the highest

needs for investment10 and (2) water-related investments have shown a poor record of cost

recovery.

East Asia and Pacific, 27%

Europe and Central Asia,

5%

Latin America and the

Caribbean, 55%

Middle East and North Africa, 8%

South Asia, 4% Sub-Saharan Africa, 1%

Thailand, 1% Vietnam, 2% Indonesia, 3%

India, 6%

Philippines, 6%

Jordan, 6%

Malaysia, 8%

Russian Federation,

14%

China, 49%

Others, 5%

39

5.2 Investment Needs

5.2.1 Overview of infrastructure investment need and gap

Infrastructure investment needs depend on country goals and the efficiency with which

these goals are pursued. Policy goals, including flood risk standards, and types of technologies

adopted are some of the factors determining the infrastructure investment needs in Asia. Data

from the 2019 World Bank publication Beyond the Gap11 are used to provide a guide on the

possible evolution of infrastructure needs based on a common set of policy goals (the SDGs) for

lower- and middle-income Asian countries. As with all global assessments, this analysis only

provides a strategic, bird’s-eye view of future needs and not an accurate projection of national

scale investment needs. Moreover, the World Bank data presented in figure 5.5 provide a lower

bound as they do not account for multipurpose water infrastructure, hydropower, and urban

drainage infrastructure needs.

The water infrastructure investment needs for Asia are in the range of 120 to 330 billion

USD per year until 2030. This is for irrigation, water supply and sanitation, and flood protection

infrastructure only. Across Asia, this amounts to about 2.5 to 7.5 of regional GDP every year until

2030. The World Bank estimates include both capital and recurrent (operation and maintenance)

costs and are developed using consistent policy goals across the scenarios. The substantive

investment needed for recurrent costs, almost half of the total, is consistent with the ADB finding

that the ratio of new investment to maintenance and rehabilitation is 4:312. The range in the

projected investment needs reflects the uncertainty in the estimates coming from the type of

policies adopted or a given accepted level of residual risk, in the case of flood protection (Figure

5.5). More ambitious policies to expand access to WSS, irrigation and increase the levels of flood

protection would lead to higher investment requirements.

Figure 5.3. Average annual spending needs for water infrastructure in Asia (billion USD), 2015-

2030.

Source: IWMI using data from Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while

protecting the planet. World Bank Publications. Because of the World Bank regional classification, irrigation estimates for Western Asia also include

countries in North Africa and estimates for Central Asia also include eastern European countries. This means that the estimates presented here for

irrigation are an upper bound on investment needs for Asia only. Percentages represent percentage of GDP.

0.5%

0.2%

1.9%1.1%

3.1%3.3%

0

50

100

150

Irrigation Flood protection Water supply andsanitation

Annual avera

ge investm

ent

needs (

billion U

SD

)

40

Water supply and sanitation is the infrastructure type with the greatest investment need.

Universal coverage of water supply and sanitation services (SDG 6.1 and 6.2) could be achieved

by 2030 at a cost of about 93 to 153 billion USD per year (about 1.9% to 3.3% of GDP per year)13.

This is for both urban and rural water supply and sanitation and includes both capital and

operations and maintenance (O&M) costs. The goal (basic access versus safely managed

access) and the related choice of technology for delivering water supply and sanitation services

are the main factors influencing the investment needs and projected range. No matter what goal

and technologies are pursued and adopted, O&M costs are expected to account for more than

half of the spending needed – and good practice shows that these should be covered from tariffs

where possible. The other half is split equally between the capital cost of extending access and

the capital investments needed to preserve services for those currently served. New capital

spending needs for water supply and sanitation infrastructure exceed replacement costs for

existing assets only in South Asia14.

Flood protection needs range between 12-149 billion USD, about 0.2 to 3.1% of GDP. This

estimate is based on several different climate change scenarios and socio-economic development

trajectories. Investment costs for protection against both coastal and river floods – and the related

projected range - depend primarily on the level of residual risk acceptable to societies and some

of the uncertainties related to construction costs15. This flood protection needs only include the

cost of dyke heightening and extension, suggesting that the actual needs might be higher given

the likely need to invest more in urban drainage and stormwater systems to reduce flood risk in

Asia’s growing cities. This also does not include investments in multi-purpose dams which often

also serve a flood protection role.

Irrigation infrastructure needs range from 30 to 64 billion USD, about 0.5%-1.1% of GDP16.

This estimate is a lower bound as it only considers capital needs to expand irrigation, without

accounting for drainage infrastructure and operation and maintenance costs of existing

infrastructure. Nor does this account for rehabilitation costs which in many countries may be

substantial. Hence, this investment is the expected cost of transforming rainfed cropland into

productive and efficient irrigated cropland, considering constraining factors such as water

availability17. Depending on the policy goals and investment scenario, between 50 Mha to more

than 80 Mha of natural land and forests could be converted to irrigated cropland18. Expanding

irrigated areas would improve food availability, yet it would also lead to significant impacts on

environmental flows and biodiversity of inland waters. Most notably, in South Asia and Western

Asia, the share of unsustainable freshwater withdrawals (i.e., freshwater withdrawals

compromising environmental flows) could reach 51% and 66% by 2050 respectively under a

scenario of aggressive irrigated cropland expansion19.

Water infrastructure needs for hydropower are in the order of one to two hundred billion

USD over the next decade depending on country energy policies. An increased focus on

renewables to achieve Nationally Determined Contributions (NDC) requires globally USD 132

billion per year from 2016 to 203020. With annual expenditures on hydropower at around USD 60

billion per year, this implies investment more than doubling from current levels at the global level21.

Also, the development of more intermittent renewable energy sources, such as solar and wind,

increases pressure for hydropower storage either in large reservoirs or in pump storage. The need

41

for large storage will increase both the cost and complexity of projects. In South Asia alone,

tapping the region’s hydropower potential presents a 107 billion USD investment opportunity

between now and 203022 assuming each country will fully meet its NDC and relevant sectoral

targets.

Attracting financing from the private sector and from multi-lateral development banks is

critical to meet these investment needs. Current public and private expenditures in water

infrastructure are an order of magnitude lower than the expected needs. Analysis from the Asian

Development Bank suggests that in 2015 public and private investments in water infrastructure

were of the order of 30-50 billion USD per year23. About 75% of this spending took place in China

alone, suggesting that investment gap might even be higher in other low- and middle-income

Asian countries. In this context, there is a large potential for AIIB to contribute to fill Asia’s water

infrastructure investment gap (Figure 5.6).

Figure 5.4. The large potential for AIIB to contribute to Asia’s water infrastructure investment gap.

Source: IWMI using data from Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while

protecting the planet. World Bank Publications for investment needs. Data on current public and private investments are for 2015 and come from Asian

Development Bank. 2017. Meeting’s Asia infrastructure needs. Manila: ADB. Data on MDBs contributions are for 2018 and come from institutional

sources. Others include EIB and bilaterals for example. Note: Data should be considered as indicative only given the large uncertainties surrounding

current public and private investments in infrastructure and the lack of comprehensive public expenditure reviews in the sector. WSS: Water Supply and

Sanitation. MDB: Multilateral Development Banks.

Closing Asia’s water infrastructure gap is not just a matter of spending more, but also

spending better. The size of the investment gap (e.g., difference between current expenditures

and future needs) shown in Figure 5.6 depends to a large extent on national policy goals and

uncertainties (e.g., construction costs, climate change) driving future infrastructure needs. All

financiers, including the AIIB, need to avoid just focusing on the financing gap issue (e.g., how

much) but to also explore how multiple investments and policy choices contribute to achieve policy

goals (e.g., what are we trying to achieve in terms of infrastructure services). Identifying the

objectives of infrastructure investment will require close interaction with AIIB client countries and

key partners (Section 8).

42

5.2.2 Infrastructure investment needs scenarios by sub-region and country

In a moderate spending scenario, investment costs are largest in South and East Asia.

When investment needs are considered by sub-region (Table 5.1), South Asia stands out as being

the sub-region with the highest spending need as a percentage of GDP while East Asia stands

out in absolute terms (across all three water sub-sectors). Western Asia also has significant

needs in terms of water supply and sanitation. Results from World Bank analysis show that while

capital expenditures are key, so are maintenance requirements24.

Table 5.1. Average annual cost of investment, by sector and sub-region, 2015-2030 as a share of

GDP (top) and in billion USD per year (bottom).

East Asia and Pacific

Eastern Europe and Central Asia

Middle-East and North Africa

South Asia

Flood protection

Total 0.33 0.07 0.21 0.61

Capital 0.25 0.06 0.17 0.54

Maintenance 0.08 0.01 0.04 0.07

Irrigation Total 0.13 0.04 0.10 0.27

Capital 0.13 0.04 0.10 0.27

Water supply and sanitation

Total 0.43 0.57 1.20 1.10

Capital 0.33 0.44 0.90 0.80

Maintenance 0.10 0.13 0.30 0.30

East Asia and Pacific

Eastern Europe and Central Asia

Middle-East and North Africa

South Asia

Flood protection

Total 50.0 2.2 4.6 25.9

Capital 38.4 1.8 3.8 22.9

Maintenance 11.7 0.4 0.8 3.0

Irrigation Total 20.0 1.3 2.3 11.5

Capital 20.0 1.3 2.3 11.5

Water supply and sanitation

Total 66.0 18.0 27.1 46.6

Capital 50.6 13.9 20.3 33.9

Maintenance 15.3 4.1 6.8 12.7

Source: Table O.1 in Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while protecting the

planet. World Bank Publications. Note: Because of the World Bank regional classification, estimates for Western Asia also include countries in North

Africa and estimates for Central Asia also include eastern European countries, hence the difference with figure 5.5 which does not show data for North

Africa and eastern Europe. This means that the estimates presented here are an upper bound on investment needs for Asia only. These are estimated

for a scenario with policies aimed at providing improved access to water services using high-cost technology in cities and low-cost technology in rural

areas, at minimizing coastal flood risks and at accepting increased risks from river floods based on cost-benefit analysis, and at subsidizing irrigation

infrastructure.

43

Within these regions, individual countries emerge as having the highest investment needs.

Average annual costs to develop and maintain infrastructure (water supply and sanitation and

flood protection only – irrigation cost projections by country are not available) are highest in

absolute terms in some of Asia’s largest economies (Table 5.2). Hence, China and India have the

greatest projected costs in absolute terms, followed by Thailand and Indonesia. In the end, how

much countries need to spend on water infrastructure depends on their policy goals and on how

they choose to pursue these goals (technology choices, construction costs). A full list of countries

for which data on infrastructure costs is available is presented in Appendix I.

Small-island nations face the greatest costs of infrastructure investment relative to the

size of their economies. If investment needs are estimated as a share of GDP, then a different

picture emerges. Spending needs in relative terms are particularly high in small-island nations

which face the existential challenge of addressing coastal flood risk (Table 5.3). In terms of water

supply and sanitation, many of Asia’s most politically fragile countries face some of the greatest

costs as a share of their GDP, reflecting the negative impact of conflict and violence on progress

towards universal access25. In some other countries with already high levels of access to water

supply and sanitation (e.g., Thailand), high costs reflect the investment need to reach universal

access to safely managed water services whilst maintaining current levels, a challenge faced by

many Asian countries.

Table 5.2. Top ten countries for average annual investment cost of water infrastructure in billion

USD per year, 2015-2030

Source: IWMI using data from Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while protecting the planet. World Bank Publications. Details provided in Annex I. Investment cost shown for moderate spending scenario and include capital and maintenance expenditures, with upper and lower bound determined by policy goals and technology choices shown in parentheses

44

Table 5.3. Top ten countries for average annual investment cost of water infrastructure as a

percentage of GDP, 2015-2030

IWMI using data from Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while protecting the

planet. World Bank Publications. Details provided in Annex I. Investment cost shown for moderate spending scenario and include capital and maintenance

expenditures, with upper and lower bound determined by policy goals and technology choices shown in parentheses.

5.3 Financing Strategies and Opportunities

5.3.1 Overview of Water Sector Financing

Water infrastructure is typically funded by a mix of public and private sources. Tariffs (e.g.

user fees), taxes (i.e. funding allocations from the public budget), and external transfers (3Ts) are

the three main funding sources available to fund capital and operation and maintenance

expenditures (Figure 5.7). These sources are preferred because they do not require repayment,

but they are seldom enough to fill the financing gap26. As a result, many Asian countries might

sensibly try to access repayable financing (i.e., they borrow money on concessional or

commercial terms which they need to repay over time) to meet the gap. However, as discussed

in Section 4.1, only some water infrastructure can generate tariffs (e.g. water supply and

sanitation, wastewater, irrigation, hydropower) which could be used to service such borrowing,

and then only if their level is sufficient and sustainable. Finance can provide the incremental

resources needed to get the infrastructure in place, but it is important to emphasize that, in the

end finance needs to be repaid. When funding sources are uncertain, it will be more difficult to

mobilize the finance needed to build water infrastructure and make strategic use of the limited

development financing (i.e. concessional) that is available to countries.

45

Figure 5.5. Funding and finance sources for the water sector.

Source: Goksu, Amanda; Trémolet, Sophie; Kolker, Joel; Kingdom, Bill. 2017. Easing the Transition to Commercial Finance for Sustainable Water and

Sanitation. World Bank, Washington, DC.

5.3.2 Financing Challenges

Current water sector financing is insufficient to meet the widening water infrastructure

investment gap. As discussed in section 5.2, future capital and operating needs for water

infrastructure will be higher than current spending levels. Because of this, countries facing lack of

funding can only invest in water infrastructure through grants and concessional loans from donors

and MDBs. In turn, this creates a stop-and-start mode of investment that does not culminate in

long-term sustainable sector improvements27. This situation calls for different approaches to the

way financial resources are used in the sector. This also presents significant opportunities for AIIB

engagement.

Water sector financing (particularly for WSS and hydropower) needs to transition towards

more commercial finance and more strategic use of scarce concessional finance.

Increasing the level of commercial finance28 (and domestic commercial finance in particular) for

the sector would allow service providers to borrow and invest in expanding and improving the

quality of water services. The benefits of commercial finance include faster access, more control

over investment decisions, and lower transaction costs29. For governments and donors, tapping

into commercial finance means freeing up scarce public resources for other important public

functions (for example, for water infrastructure that does not generate cash flows like flood

protection). In addition, expanding domestic commercial finance has the advantage of eliminating

the foreign exchange risk that arises when revenues are in local currency and debt service is in

in foreign currency (local currency devaluation makes repayment in foreign currency much

costlier, often landing borrowers such as water utilities with unbearable costs).

46

Mobilizing commercial financing is challenging and requires many intermediate steps

(Figure 5.8). Very often, water infrastructure projects do not generate reliable revenue streams,

making the sector less attractive to private investors. This is the case for many water utilities and

irrigation agencies in Asia, who are unable to generate revenue streams to cover their operation

and maintenance costs, let alone a surplus to service repayable finance30. In addition, water

sector agencies often lack management skills, leadership, corporate structures and regulatory

frameworks to enable them to prepare to access private finance. Continuous improvements are

needed to reach full creditworthiness.

Figure 5.6. Continuous improvement is needed to mobilize commercial finance in the water sector.

Source: World Bank.

Multilateral development banks like AIIB can leverage their funds to help countries

overcome some of these challenges and attract commercial finance. A blended finance

approach (i.e. using public or concessional and commercial finance)31 offers two key advantages.

First on the demand side, this approach offers more affordable borrowing rates (i.e. mitigates the

costs of full-on market finance) and can accommodate political constraints that sets a ceiling on

tariff levels. Second, on the supply side, it reduces lender risk through the participation and due

diligence of a MDB or donor. AIIB could, potentially, employ several instruments to help

commercial finance work for its clients and for interested lenders, including grants, concessional

loans and equity, and credit enhancements.

Blended finance is increasingly being used across Asia to finance water infrastructure. In

Bangladesh, for example, output-based-aid from the World Bank is being blended with

microfinance loans to lower the cost of latrines and spread repayment out in weekly installments

over an entire year 32 . The blending is expected to leverage $22 million in household

contributions33. Similarly, Indonesia’s ambitious water supply and sanitation targets are backed

by a financial strategy that leverages commercial finance34. The urban water supply and sanitation

47

sector is where most blended finance approaches have been tested, with examples from Asia

including Manila and Phnom Penh.

Several climate-related sources of financing have also arisen. These include green bonds,

the Green Climate Fund (GCF), the Clean Development Mechanism (CDM), and the Adaptation

Fund. Green bonds are intended to raise finance for projects that help the transition to low carbon

and climate-resilient development. The GCF will become potentially important in funding the

creation and adaptation of existing and new water infrastructure to make them more climate

resilient and more energy efficient. In the past, the CDM allowed emission reduction projects in

developing countries to earn certified emission reduction credits, each equivalent to 1 metric ton

of carbon dioxide. These credits could be traded and sold and used by industrialized countries to

meet a part of their emission reduction targets under the Kyoto Protocol, although the long term

future of these schemes is uncertain under the Paris Agreement. In Egypt (where AIIB has already

provided water sector financing35) the CDM mechanism is being used for an irrigation and

drainage pumping stations modernization program where emissions reductions are resulting

through energy savings36.

Notes and References

1 Afghanistan, Azerbaijan, Bangladesh, Bhutan, Brunei, Cambodia, Cook Island, Fiji, Georgia, India, Indonesia, Kazakhstan, Kiribati, Kyrgyz Republic, Lao, Malaysia, Maldives, Marshall, Micronesia, Mongolia, Myanmar, Nauru, Nepal, Pakistan, Palau, Philippines, PNG, PRC, Republic of Korea, Samoa, Singapore, Solomon, Sri Lanka, Tajikistan, Thailand, Timor-Leste, Tonga, Turkmenistan,

Tuvalu, Uzbekistan, Vanuatu, Viet Nam 2 Perdiguero, A. 2017. Infrastructure Financing Challenges in Southeast Asia. Policy Dialogue on Infrastructure Financing Strategies for Southeast Asia. Manila, 29 August 2017. 3 Asian Development Bank. 2017. Meeting’s Asia infrastructure needs. Manila: ADB. 4 ibid 5 ibid 6 ibid 7 IWMI using data from Asian Development Bank. 2017. Meeting’s Asia infrastructure needs. Manila: ADB for current investment levels and data from Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need

while protecting the planet. World Bank Publications for investment needs. 8 High Level Panel on Water. 2018. Water Infrastructure and Investment. Available from: https://sustainabledevelopment.un.org/content/documents/hlpwater/08-WaterInfrastInvest.pdf 9 World Bank (2018) Procuring infrastructure public-private partnerships 2018 in China. Available from: https://bpp.worldbank.org/content/dam/documents/bpp/china.pdf 10 Tyson, J. (2018) Private infrastructure finance in developing countries: five challenges, five solutions. Overseas Development

Institute, London. 11 Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while protecting the planet. World Bank Publications. 12 Asian Development Bank. 2017. Meeting’s Asia infrastructure needs. Manila: ADB. 13 IWMI using data from Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while protecting the planet. World Bank Publications. Note: Because of the World Bank regional classification, estimates for

Western Asia also include countries in North Africa and estimates for Central Asia also include eastern European countries. This means that the estimates presented here are an upper bound on investment needs for Asia only. 14 Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while protecting the

planet. World Bank Publications. (Figure 2.1). 15 Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while protecting the planet. World Bank Publications. (Chapter 5). 16 Because of the World Bank regional classification, irrigation estimates for Western Asia also include countries in North Africa and

estimates for Central Asia also include eastern European countries. This means that the estimates presented here for irrigation are an upper bound on investment needs for Asia only.

48

17 Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while protecting the planet. World Bank Publications. 18 Palazzo, A., Valin, H.J.P., Batka, M. and Havlík, P., 2019. Investment Needs for Irrigation Infrastructure along Different

Socioeconomic Pathways.World Bank Background Paper for or the World Bank Group’s report: “Beyond the Gap: How Countries Can Afford the Infrastructure They Need While Protecting the Planet.” 19 ibid 20 IRENA (2016), REmap: Roadmap for a Renewable Energy Future, 2016 Edition. International Renewable Energy Agency (IRENA), Abu Dhabi, www.irena.org/remap. pg. 123 21 ibid 22 International Finance Corporation. 2017. Climate investment opportunities in South Asia. An IFC analysis. Washington DC: IFC. pg. xii. 23 This estimate is based on Table 5.1 in Asian Development Bank. 2017. Meeting’s Asia infrastructure needs. Manila: ADB. Given

the uncertainty in estimates of current investments, the data are presented as a range. 24 Rozenberg, J. and Fay, M. eds., 2019. Beyond the gap: How countries can afford the infrastructure they need while protecting the planet. World Bank Publications 25 Sadoff, C.W., Borgomeo, E. and De Waal, D., 2017. Turbulent Waters: Pursuing Water Security in Fragile Contexts. World Bank. 26 Goksu, Amanda; Trémolet, Sophie; Kolker, Joel; Kingdom, Bill. 2017. Easing the Transition to Commercial Finance for Sustainable Water and Sanitation. World Bank, Washington, DC. 27 ibid 28 Commercial finance refers broadly to various types of finance that are neither concessional finance nor official development finance, and which are usually provided at market rates. In the water sector, this can range from microfinance loans to bonds and

can be offered to service providers, local governments, individual users or user groups. Providers of commercial finance may include domestic commercial banks, microfinance institutions or capital market investors (via bonds or equity). 29 Goksu, Amanda; Trémolet, Sophie; Kolker, Joel; Kingdom, Bill. 2017. Easing the Transit ion to Commercial Finance for

Sustainable Water and Sanitation. World Bank, Washington, DC. 30 Gupta, Anjali Sen. 2011. Cost recovery in urban water services : select experiences in Indian cities (English). Water and sanitation program technical paper. Washington, DC: World Bank. 31 Leigland, J., S., Trѐmolet, J., Ikeda. 2016. Achieving universal access to water and sanitation by 2030: the role of blended finance. Washington DC: World Bank Group. 32 World Bank. 2016. Facilitating access to finance for household investment in sanitation in Bangladesh. Case studies in blended

finance for water and sanitation. World Bank: Washington DC. Available from: https://www.wsp.org/sites/wsp.org/files/publications/WSS-9-Case-Studies-Blended-Finance.pdf 33 ibid 34 Goksu, Amanda; Trémolet, Sophie; Kolker, Joel; Kingdom, Bill. 2017. Easing the Transition to Commercial Finance for Sustainable Water and Sanitation. World Bank, Washington, DC. 35 https://www.aiib.org/en/news-events/news/2018/20180928_001.html 36 Azad, A. 2009. Egypt Case Study Energy Efficiency CDM Program: Irrigation and Drainage Pumping Sector. In: Jagannathan,

N.V., Mohamed, A.S. and Kremer, A., 2009. Water in the Arab World. Middle East and North Africa Region and The World Bank. Management Perspectives and Innovations. World Bank, Washington, DC.

49

6. Water Infrastructure for Development: Lessons Learned

The development and management of water infrastructure presents major policy,

institutional, technical, financial, environmental and social challenges for most countries.

While many lessons learned are common across countries and water sub-sectors, there is also a

high degree of specificity in response to water infrastructure given the local nature of water

management. Thus, the most appropriate intervention for a country will depend on the priorities

of the stakeholders directly concerned and on the specific economic, political, social, cultural, and

historical circumstances. Some general implementation lessons from MDBs are given below.

6.1 Strengthen Institutions and Policies

Well-designed infrastructure only delivers expected outcomes when it is backed by

appropriate and effective institutions and policies. Governance matters: This is true across

a wide range of sectors but especially true in the water sector where the political economy

dominates the ability to effectively govern the resource and associated services. Weak

institutional environments are a common denominator across many water sub-sectors. Reasons

for this are many, including general weakening of the public sector, budgetary and staffing

declines, and resistance to reform from entrenched vested interests. For example, modernizing

large irrigation bureaucracies in South and East Asia to be more service-oriented towards farmers

is not easy. Reforming the water utility sector to be more efficient (both technically and financially)

and the establishment of effective regulators is a well-known challenge. These are all matters of

an institutional and policy nature driven by the binding constraints inherent in the political economy

of the country at any given time. Some useful principles for water governance have been

developed by the Organization for Economic Development and Cooperation1.

It should be recognized that these are deeply difficult operational issues requiring

tremendous support and engagement with country clients. Investments in both management

improvements and priority infrastructure have complementary roles in contributing to

socioeconomic outcomes (e.g. improved services for users, reduction in flood risks, improved

water quality). The World Bank2 finds that institutional reform, institutional strengthening, and

capacity building - though they are the most frequent activities in World Bank water-related

lending - have often been less than fully effective. Weak institutions have been identified as

responsible for project shortcomings, whilst capacity building has not always resulted in improved

performance. Thus, extra care and attention is needed on these aspects.

Projects must be designed with a careful balance between infrastructure and institutional

strengthening. Human capacity to manage water infrastructure and undertake long-term

strategic planning is weak at all levels (municipal, rural, national, regional, basin) in many low-

and middle-income Asian countries. The water sector has proved difficult to attract the needed

skills and competencies especially project management, financial and asset management skills.

At the entry level, low public salaries do not attract young skilled professionals. In rural areas,

this is an even greater challenge. Thus, adequate attention and support must be given to human

50

infrastructure in the design of infrastructure investments. Similarly, investment in the development

of management support tools and appropriate IT infrastructure (e.g. decision support tools for

water investment planning, flood forecasting, asset management systems, hydro-meteorological

systems) will complement investments in infrastructure. Building this human and support

infrastructure can be outsourced in part or in whole but ultimately, capacity building and

institutional development take time to grow and become internalized in the various sub-sectors.

This means that these changes either must start very early in a project and/or they need nurturing

for a period after the investment components have been completed. Typically, a utility turnaround,

for example, requires a ten-year horizon, well beyond that of an investment project cycle.

6.2 Promote Financial Sustainability

Irrespective of the source of funds, financial sustainability must be guaranteed to ensure

infrastructure sustainability and effective outcomes. For some infrastructure (primarily those

related to services such as water supply, wastewater, irrigation), tariffs are important sources of

funding for the entire life-cycle of the infrastructure. Tariff setting remains a highly complex and

politically charged issue. If tariff levels are set too high, then consumers may face affordability

issues and/or reduce water use – leading to reduced revenues for the service provider and

possible public health implications. On the other hand, if tariff levels are set too low then tariffs

do not cover the operational and or capital costs leading to erosion of services. These tariff

challenges have a direct influence on the credit-worthiness of a utility and public budgets for the

irrigation agency. Insufficient tariff generated revenue is a main reason why public service

providers are unable to qualify for debt from both commercial and national development

banks. According to the World Bank3, only 15% of water supply and sanitation projects that

attempted full cost recovery achieve this goal. Projects that have succeeded have generally done

so through improving the collection of fees. For achieving full cost recovery, the key is an

institutional framework for making service providers more accountable and efficient.

For other infrastructure that do not easily generate cash flows (e.g. flood protection,

irrigation), other sources will be needed to ensure that enough funds are allocated for

operation and maintenance (O&M). Other sources may include national budgets (e.g. public

grants, subsidies), self-financing from water users (e.g. decentralized management of local

infrastructure to community user groups), various taxes (e.g. land, pollution), and property

developers (e.g. through innovative land value capture techniques). Agency budgets and

expenditures need to be reviewed for any new investment in water infrastructure of this type to

guarantee proper budgetary allocations will be made after the project is completed. This will be

critical to the sustainability of the infrastructure.

6.3 Understand Risk-Reward Characteristics

The risk-reward calculation for water infrastructure is essential to securing financing.

Different stakeholders involved with water infrastructure (e.g. governments, public agencies,

private water operators, commercial lenders) face a wide range of risks. In comparison to other

51

investments (e.g. oil, gas, minerals) these risks are often not accompanied with large rewards.

Moreover, these risks may not always be easy to quantify or minimize. For example, hydrological

risks which are inherent to all activities dependent on water may not be easily quantified especially

in the context of climate change4. This uncertainty threatens the performance of a wide range of

activities such as municipal water supply deliveries, stormwater and drainage system of a city,

water-intensive industries and agriculture, production of energy (e.g. hydropower, shale-gas

production), timing of releases from a dam for flood protection. This has clear implications with

respect to the design and planning of water infrastructure. Financial risks, similarly, are ever

present in terms of the commercial side (e.g. revenue and cost recovery risks), the construction

side (e.g. site-specific issues, well documented experience of delays and cost overruns in large

dams 5 ), and the regulatory framework (tariff setting, currency risk, rules for foreign direct

investment). For some water infrastructure, environment and social risks are also well

documented. Finding ways to share and mitigate risks is critical.

It is commonly accepted that risks should be allocated to those parties best able to bear

them most efficiently and at least economic, environmental and social cost. Similarly, it is

argued that those parties that are in the best position to control these risks should also bear

primary responsibility for it (see figure 6.1) 6 . Under some conditions, large engineering,

procurement, construction (EPC) and turnkey contracts will make sense in terms of assigning

risk. For hydropower, in contrast, it could be more cost effective for public sponsors to retain

these risks on their own account rather than devolve them, inappropriately and expensively, to

private contractors7. Figure 6.1 summarizes the types of risks associated to different parties

typically involved in infrastructure development.

Figure 0.1. Coverage of risks: the party that has the greatest control over a risk bears primary

responsibility.

SOURCE: Adapted from World Water Council, Organization for Economic Co-operation and Development (OECD) (2015) Water: Fit to finance.

Catalyzing national growth through investment in water security. Report of the high level panel on financing infrastructure for a water-secure world.

There are opportunities to mitigate these risks in various ways. Financial guarantees can

offer coverage on political, contractual, regulatory and credit risks. Many international finance

institutions (IFIs) currently offer these products (e.g. World Bank, MIGA and IFC, AfDB, ADB,

IaDB, EIB, AFD). Other instruments may be possible (e.g. insurance, currency hedging

instruments, use of escrow accounts). Risk sharing mechanisms such as using a geotechnical

52

risk register which allocates risk depending on the severity of the occurrence can also improve

project financing.

6.4 Improve Long-term Capital Planning

Investments into water infrastructure may be held back by factors other than the

availability of finance. That is, there is generally not a shortage of finance, but a shortage of

adequately prepared projects with properly managed risk profiles (also referred to as ‘bankable’

projects). Water infrastructure projects, given their often technical and institutional complexity,

require adequate preparation of technical documents (e.g. feasibility studies, design

documentation, preliminary bill of quantities), environment and social impact assessments as well

as approaches to minimizing impacts during construction, economic cost-benefit analyses, and

financial analysis (including evaluation of the entire life-cycle costs of the project). Sufficient

project preparation will be necessary before financing can be secured (especially from private

sources). Moreover, proper long-term infrastructure planning can help countries avoid “lock-in”

where society gets stuck with infrastructure which it does not need.

6.5 Consider Public-Private Partnerships

The private sector is risk averse and will not easily enter the water sector. Political and

macroeconomic risks in many low- and middle-income countries often deter investors8. Many

investors are also not familiar with the investment environment of some low-income countries,

and this might increase further their perception of risk9.

The lack of bankable and investment-ready projects is a key barrier to public/private or

fully private capital mobilization12. Efficient governments typically have a pipeline of projects

prepared that are viable investments and will be able to communicate this to the market. To create

the right incentives for private capital mobilization, the distribution of risks and rewards expressed

in project preparation and contractual arrangements needs to incentivize the various potential

partners10. Most low income and middle-income countries, in contrast, face a shortage of such

well-prepared, bankable projects11. National and local governments often don’t have the capacity,

experience, and understanding of private sector needs to prepare bankable projects. In many

cases, governments cannot bear the cost of preparing such projects. This highlights the role that

project preparation facilities can play. Similarly, investors may find infrastructure projects

complex, particularly because of the need to include non-standard financing, and governance and

risk mitigation issues12.

To date, public-private partnerships (PPPs) in the water sector have been limited to urban

water supply provision, wastewater services, and hydropower. PPPs have been explored in

the irrigation sector but to date their impact has been limited. PPPs are a viable option in

developing countries and have demonstrated success in terms of operational efficiency and

service quality although less successful in supplying private finance 13 . These operational

improvements can have a major impact on access to financing. By improving efficiency and

53

quality of service, customers become more willing to pay their bills, thereby generating more cash

flow from operations which can be used to invest in expansion, which in turn increases the

customer base and revenues. As creditworthiness improves, a utility can more easily access

market finance and invest in service expansion (see earlier Figure 2.7).

Details matter with the choice of contractual design. The enabling environment and the

willingness of both the public and private partners to making it work during implementation are

major determinants of the final outcome. Few countries have these necessary conditions. In

cases where it worked well, early and sustained engagement and on-the-ground presence (both

in terms of local partners and an international financial institution) were critical (e.g. Manilla

Water). PPP projects have, however, proved to be complex undertakings that carry strong

political risks and large uncertainties as to the magnitude and timing of the expected benefits.

Contractual targets are difficult to set and baseline data are seldom reliable which can generate

many opportunities for contractual conflict. Private operators do not always deliver the hoped-for

benefits as quickly as expected and this can undermine support for the arrangement whilst the

public sector may suffer from lack of capacity and hence the ability to effectively manage the PPP.

PPPs are not an end in itself. They need to be seen as part of a strategy of interventions that

can improve sector performance. There is now greater realism about the strengths and

weaknesses of the private sector in WSS service delivery in developing countries. This has led to

the use of more targeted service contracts to deliver improved performance in particular activities

(e.g. leakage management, energy efficiency, collections), the use of turnkey contracts for

treatment facilities with an operational period (such as design build operate wastewater treatment

plants) or affermage contracts to deliver better service to customers and improved financial

performance to shareholders but drawing on public funding for capital investments. The use of

long-term privately financed, concession contracts is now rare.

6.6 Engage Stakeholders and Beneficiaries

By bringing to the table all those who bear the risks associated with different options for

water infrastructure, outcomes will greatly improve. Moreover, the development

effectiveness of water infrastructure projects improves by eliminating unfavorable projects at an

early stage, and by offering as a choice only those options that key stakeholders agree represent

the best ones to meet the needs in question. The conditions for a positive resolution of competing

interest and conflicts are created.

6.7 Develop More Incentives

The broad water sector is conservative, with few incentives to deliver better financial or

technical performance, nor to be efficient in its use of capital. There is a need to provide

greater incentives in the sector that will reveal higher levels of capital and operational performance

and thus create new benchmarks against which future investments can be compared. There are

a number of ways in which such incentives are appearing. These include in the use of output-

54

based financing, program for results lending, the use of performance-based PPPs, and the

introduction of staff incentives based on agreed performance improvements. Relying on traditional

input-based investments, without incentives to improve efficiency or performance, will perpetuate

the challenges that the water sector faces without introducing new dynamics which can lead to

genuine change and development.

Notes and References

1 OECD. 2015. Principles on Water Governance, 24 pgs. 2 World Bank. 2009. IEG Fast Track Brief on the IEG Report “Water and Development an Evaluation of World Bank Support 1997-

2007. The World Bank. 6pps. 3 ibid 4 P. C. D. Milly, J Betancourt, M Falkenmark, RM. Hirsch, ZW. Kundzewicz, DP. Lettenmaier, RJ Stouffer. 2008. Stationarity is

Dead: Whither Water Management. Science, 319(5863), 573-574. 5 World Commission on Dams. 2000. Dams and Development: A New Framework for Decision Making. Earthscan Publishers. 356 pp.. 6 World Water Council and OECD. 2015. Water: Fit to Finance? Catalyzing National Growth Through Investment in Water Security. 127 pp. 7 ibid 8 World Economic Forum (2016) Risk Mitigation Instruments in Infrastructure: Gap Assessment. Global Agenda Report. Davos, Switzerland: World Economic Forum (http://www3.weforum.org/docs/WEF_Risk_Mitigation_Instruments_in_Infrastructure.pdf) 9 Global Infrastructure Facility (2016) Making infrastructure rewarding. A report by the Global Infrastructure Facility. World Bank

Group. 10 Ehlers, T. (2014) Understanding the challenges for infrastructure finance. Working Paper No. 454, August 2014. Basle, Switzerland: Bank for International Settlements (www.bis.org/publ/work454.pdf) 11 Global Infrastructure Facility (2016) Making infrastructure rewarding. A report by the Global Infrastructure Facility. World Bank

Group. 12 Tyson, J. (2018) Private infrastructure financing in developing countries. Five challenges, five solutions. Overseas Development Institute: London. 13 Marin, P. 2009. Public-private partnerships for urban water utilities: a review of experiences in developing countries. The World Bank. 212 pp.

55

Appendix I: Cost of water infrastructure investment by country

The cost of water infrastructure varies greatly depending on country contexts and

development goals. This appendix offers a review of the spending needs (capital and

maintenance) needed to close the service gap for two sub-sectors: water supply and sanitation

and flood protection (riverine and coastal). The estimates are based on the 2019 World Bank

study ‘Beyond the Gap: How Countries Can Afford the Infrastructure They Need while Protecting

the Planet’. Compared to other infrastructure investment gap studies, the World Bank analysis

recognizes the large uncertainty surrounding these estimates and uses scenarios to take this

uncertainty into account. Scenarios represent different combinations of policy goals and

instruments/choices used to reach these goals. The scenarios considered for each sub-sector are

described in detail below. All scenarios consider historical patterns of development and continued

population growth beyond 2030 (last year considered in this analysis) as encapsulated in the

Shared Socioeconomic Pathway (SSP) 2.

The cost of achieving safely managed access to water supply and sanitation services is much

higher than just achieving universal access. Three scenarios of the cost of water supply and

sanitation investment were considered:

• Minimum spending: universal access to basic water, sanitation and hygiene services by 2030

• Moderate spending: achieve universal access to safely managed water and sanitation

services and end to open defecation by 2030 using a low-cost technology and a direct strategy

(Assumes that countries go directly to providing safely managed services for all citizens)

• Maximum spending: achieve universal access to safely managed water and sanitation

services and end to open defecation by 2030 using high cost technology and an indirect

strategy (Assumes that countries first deliver universal access to basic water and sanitation

services to all of their citizens, before working to upgrade everyone to safely managed

services)

Investment costs for protection against both coastal and river floods depend primarily on the level

of risk acceptable to populations and construction costs. For both river and coastal floods, we

consider a scenario of continued carbon emissions (RCP 4.5) and medium ice melting. For

coastal protection, we considered three flood protection strategies and related spending

scenarios:

• Minimum spending: this strategy maintains the current (2015) average annual losses constant

in monetary terms for protected (constant absolute risk);

• Moderate spending: this strategy maintains relative average annual losses constant in terms

of percentage of local GDP for protected areas (constant relative risk);

• Maximum spending: this strategy keeps average annual losses below 0.01 percent of local

GDP for protected areas and entails a low risk tolerance, similar to the level of flood risk

accepted in the Netherlands (low risk tolerance).

56

For river floods, we considered three flood protection strategies and related spending scenarios:

• Minimum spending: achieving an optimal level of protection based on cost-benefit analysis

(optimal protection);

• Moderate spending: this strategy maintains the current (2015) average annual losses constant

in monetary terms (constant absolute risk);

• Maximum spending: this strategy maintains relative average annual losses constant in terms

of percentage of local GDP for protected areas (constant relative risk).

57

Timor-LesteSyria

YemenAfghanistanNepal

IraqPakistan

JordanPapua New GuineaCambodia

MyanmarVietnam

PhilippinesBangladesh

FijiThailand

KiribatiLao PDRMarshall IslandsAzerbaijan

Kyrgyz RepublicLebanonMicronesiaTuvaluTajikistanMalaysiaIndiaSamoa

ArmeniaTongaPalauSri Lanka

BhutanGeorgia

Solomon IslandsIranVanuatu

UzbekistanNauru

TurkmenistanIndonesiaTurkeyCook Islands

MongoliaKazakhstan

MaldivesNiueChina

0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08

Annual share of GDP needed to close water supply and sanitation infrastructure gap

Minimum spending scenario (basic WASH,low cost technology)

Moderate spending scenario (safelymanaged services, low cost technology)

Maximum spending scenario (safelymanaged services, high cost technology)

58

ChinaIndia

IndonesiaPakistan

ThailandTurkey

PhilippinesIraq

MalaysiaBangladeshIranVietnam

YemenKazakhstanMyanmarSri LankaJordanUzbekistanNepalAfghanistanLebanonAzerbaijanPapua New GuineaTurkmenistanCambodiaLao PDRTimor-LesteGeorgiaTajikistanArmenia

MongoliaFijiBhutanMaldivesSolomon IslandsSamoaVanuatuTonga

0 10 20 30 40 50 60 70

Average annual cost to close water supply and sanitation infrastructure gap (bn$)

IndonesiaPakistan

ThailandTurkey

PhilippinesIraq

MalaysiaBangladeshIranVietnam

YemenKazakhstan

MyanmarSri Lanka

JordanUzbekistanNepalAfghanistanLebanonAzerbaijan

Papua New GuineaTurkmenistanCambodia

Lao PDRTimor-Leste

GeorgiaTajikistanArmeniaKyrgyz RepublicMongoliaFijiBhutanMaldivesSolomon IslandsSamoaVanuatuTonga

0 1 2 3 4 5 6 7 8 9

Minimum spending scenario(basic WASH, low costtechnology)Moderate spending scenario(safely managed services, lowcost technology)Maximum spending scenario(safely managed services, highcost technology)

59

VanuatuMongolia

TongaTimor-Leste

AfghanistanMyanmar

Lao PDRTuvalu

SamoaFiji

CambodiaTajikistan

BhutanVietnam

KazakhstanUzbekistanNepalThailandIraqBangladesh

PhilippinesIndia

PakistanKorea DPROmanMalaysiaTurkmenistanGeorgiaSyrian Arab RepublicIndonesiaChinaArmeniaPapua New GuineaCyprusAzerbaijanMaldivesTurkeySri LankaLebanonJordanBrunei DarussalamYemenIran

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4

Cost for coastal and river flood protection infrastructure investment per year (share of GDP), 2015-2030

Minimum spending scenario (constantprotection level)

Moderate spending scenario (constantrelative risk strategy)

Maximum spending scenario (Low risktolerance strategy)

60

ChinaIndia

MyanmarIndonesia

VietnamThailand

MongoliaBangladeshPhilippinesKazakhstanIraq

PakistanAfghanistan

MalaysiaLao PDRUzbekistanTurkeyCambodia

Papua New GuineaOmanNepalTimor-LesteTajikistanIranSri LankaTurkmenistanVanuatuFijiYemenAzerbaijanBhutanGeorgiaLebanonTongaJordanCyprusArmeniaSamoaBrunei DarussalamMaldives

0 10 20 30 40 50 60

Cost for coastal and river flood protection infrastructure investment per year (bn$), 2015-2030

Minimum spending scenario (constantprotection level strategy)

Moderate spending scenario (constantrelative risk strategy)

Maximum spending scenario (low risktolerance strategy)